Regulators shut down Silicon Valley Bank on Friday, capping a remarkable 44-hour fall for the tech-heavy bank and sending shock waves through the financial system.
The California Department of Financial Protection and Innovation took possession of the struggling bank, whose
The FDIC said it has created the Deposit Insurance National Bank of Santa Clara and transferred all of SVB's insured deposits to that entity. The agency said all insured depositors "will have full access to their insured deposits no later than Monday morning."
The FDIC also said that it "will pay uninsured depositors an advance dividend within the next week." The bank's branches will reopen on Monday, the FDIC said.
Earlier on Friday morning, trading in SVB Financial, the bank's $212 billion-asset parent company, had been paused, and some
The FDIC insures depositors' accounts up to $250,000. But many of Silicon Valley Bank's deposits are above that threshold, according to a research note from RBC Capital Markets analyst Gerard Cassidy.
As of the fourth quarter of 2022, deposits that were under $250,000 accounted for just 2.7% of the company's total deposits, Cassidy wrote.
Silicon Valley Bank had received a glut of deposits during the pandemic-era tech boom, when interest rates were still low, and had invested much of that money in low-yielding securities. When interest rates rose sharply, the value of the securities fell, and the bank accumulated unrealized losses on them.
Back in January, SVB Financial CEO Greg Becker suggested that the bank had turned a corner.
"Last quarter, there was more uncertainty," he said during the company's fourth-quarter
But late on Wednesday, the bank said that it had sold $21 billion in securities that were marked as "available for sale" at a $1.8 billion loss, and that it was making downward revisions to its outlook for deposits, net interest income, net interest margin and expenses.
Simultaneously, the bank said it was embarking on a $2.25 billion capital raise. Though it did announce a $500 million commitment from the investment fund General Atlantic, the bank had not secured the full $2.25 billion by the time of its announcement on Wednesday.
Casey Haire, an analyst at Jefferies who covers SVB Financial, said the company made "a colossal mistake" by not raising capital Wednesday.
"They should have raised equity right then and there Wednesday afternoon. They didn't. They had already sold the securities. They waited until the next day and, worse yet, waited until the market opened to have an underwriter call at 10 a.m.," Haire said.
"I'm shocked. This did not have to happen. Had they raised equity on Wednesday night, this never would have happened," he added.
After the bank's announcement on Wednesday, the situation unraveled quickly. On Thursday there were reports that Founders Fund, the venture capital fund co-founded by Peter Thiel, was advising companies to withdraw their money from Silicon Valley Bank.
But between the end of 2021 and Feb. 28, 2023, Silicon Valley Bank's on-balance-sheet deposits had already fallen from around $210 billion to $160 billion, according to Gary Tenner, an analyst at D.A. Davidson.
The bank's decision to sell a large securities portfolio and raise capital put it in a difficult position, Tenner said Friday.
"Obviously the market was not receptive to their capital raise, to put it lightly," Tenner said.
The collapse of Silicon Valley Bank was the first bank failure in nearly two and a half years. The last FDIC-insured institution to fail was the $70 million-asset Almena State Bank in Kansas on Oct. 23, 2020, according to the FDIC's website
Jaret Seiberg, an analyst at TD Cowen, said that Silicon Valley Bank's abrupt collapse stemmed from its unusually large exposure to interest rate risk.
"Silicon Valley had a unique business model that was less dependent on retail deposits than a traditional bank," Seiberg wrote in a note to clients. "This left the bank more exposed to interest rate risk as its funding got more expensive, but its assets were not repricing higher."
The San Francisco Home Loan Bank,
Seiberg said that it's possible that all depositors will be made whole, since the FDIC said that Silicon Valley Bank's assets exceeded its liabilities by nearly $35 billion on Dec. 31, 2022.
John Popeo, a principal at The Gallatin Group who worked for the FDIC leading bank failure deals during the financial crisis, predicted that the status of Silicon Valley Bank's unusually high amount of uninsured deposits will now become a subject of contention.
The preferred method of an all-deposits transaction is now off the table, he said, which would have made the process for recovering those uninsured deposits significantly easier.
Typically, he said, the kind of transaction that Silicon Valley Bank is undergoing is reserved for situations where there is no prospective acquirer.
"For the uninsured deposits, the depositors will still have the claim against the receiver," Popeo said. "They will have to file a proof of claim with the FDIC's receiver, and the status of what they'll be eligible for is unknown."
Popeo also noted that the timing of the bank's failure — during work hours on a Friday — was unusual.
"That's amazing," he said. "Banks are not supposed to fail until their scheduled closing time. So this speaks to the urgency of the situation."
Allissa Kline and Kevin Wack contributed to this story.
