Regulators Shut Down Silicon Valley Bank (SVB)

Silicon Valley Bank, a major financial institution for venture-backed companies, was shut down by Californian regulators

In a stunning development, Silicon Valley Bank (SVB) has been closed down by California regulators, marking the first time a Federal Deposit Insurance Corporation (FDIC)-insured bank has failed since the global financial crisis more than a decade ago. According to the California Department of Financial Protection and Innovation, SVB was ordered to close down, but the reasons for the shutdown were not specified. The FDIC has been appointed as the receiver to safeguard insured deposits.

SVB was a major financial institution for venture-backed companies, with operations across California and Massachusetts. The bank was a key player in the tech and venture capital community and provided financial services to several crypto-focused venture firms, including Andreessen Horowitz and Sequoia.

Major Implications

The regulator has clarified that insured depositors will have full access to their deposits no later than March 13, 2023, while uninsured depositors will be given a “receivership certificate for the remaining amount of their uninsured funds” and will be entitled to future dividend payments once the FDIC sells all of SVB’s assets. SVB’s 17 branches, including the main office, will be open on March 13 to allow depositors to access their funds.

SVB’s collapse has left companies and wealthy individuals in a state of uncertainty, unsure of what will happen to their money. As of the end of December 2022, SVB had approximately $209 billion in total assets and $175.4 billion in total deposits, making it one of the 20 largest banks in the United States by total assets. The FDIC has said that it is unclear what portion of those deposits were above the insurance limit.

The FDIC has created the Deposit Insurance National Bank of Santa Clara to hold the insured deposits from SVB. The FDIC’s standard insurance covers up to $250,000 per depositor, per bank, for each account ownership category. It is uncertain how larger accounts or credit lines for companies will be affected by the closure. The FDIC has said it will pay uninsured depositors an advanced dividend within the next week.

What Can Happen Next?

The move represents a rapid downfall for SVB, which had announced on Wednesday that it was looking to raise more than $2 billion in additional capital after suffering a $1.8 billion loss on asset sales. The bank’s downfall was swift, coming less than 48 hours after management disclosed that they needed to raise funds.

BREAKING: Before the collapse of Silicon Valley Bank, $SIVB, the CEO sold $3.57 million of stock within the last two weeks. pic.twitter.com/mMEQhdVM2F

— unusual_whales (@unusual_whales) March 10, 2023

SVB’s shares, which had been trading north of $280 at the start of the week, fell 60% on Thursday and another 60% in premarket trading on Friday before being halted. Trading in SVB stock was halted on March 9 due to extreme volatility, marking the biggest single-day wipeout in history, according to The Wall Street Journal.

SVB Stock in the Last Few Days. Source: Yahoo Finance

The closure of SVB will have far-reaching implications not only for depositors but also for credit facilities and other forms of financing. SVB was a major bank for venture-backed companies, which were already under pressure due to higher interest rates and a slowdown for initial public offerings that made it more difficult to raise additional cash.

While many Wall Street analysts have argued that the struggles for SVB are unlikely to spread to the broader banking system, shares of other mid-sized and regional banks were under pressure on Friday. Treasury Secretary Janet Yellen said during testimony to the House Ways and Means Committee on Friday morning that she was “monitoring very carefully” developments at a few banks.

Loan customers of SVB should continue to make their payments as normal, according to the FDIC. However, the closure of SVB could make it more difficult for venture-backed companies to obtain financing at a time when interest rates are rising and the IPO market is slowing down.

The FDIC has taken control of SVB’s deposits and has said that insured depositors will have access to their money by Monday morning.

How Can SVB Impact the Crypto Market?

It is likely that the fall of SVB will cause more FUD in financial markets, including the crypto market. With the high volatility and uncertainty in the crypto industry, especially after everything that happened in 2022 with FTX, such events could impose more burdens for crypto-related companies.

Companies need to demonstrate that they are not exposed financially to the SVB so that this event won’t aggravate the market. For instance, Changpeng “CZ” Zhao of Binance immediately said on his Twitter account that his company is not exposed to SVB.