Last Friday, the United States Regulators shut down Silicon Valley Bank (SVB). SVB is a commercial bank that provides financial services to tech companies, VCs and private equity firms and operates in the US, UK, Canada, India, China, etc.
The bank had on Wednesday 8th March, announced that it had sold a large quantity of its securities worth $21 billion at the time of sale, but had run at a loss of about $1.8 billion after tax.
This announcement came while SVB was working on resetting its interest earnings to the current yields. The current yields were expectedly higher, and would provide the bank with the balance-sheet flexibility to meet potential outflows while aiding the bank’s plan to raise about $2.25billion in capital.
These plans sent a panic wave into the stock markets causing a fall in the bank’s stock price triggering a bank run as capital firms reportedly began to advise their portfolio companies to withdraw their deposits from SVB. This led to a surge of deposit withdrawals resulting in the banks fatal fiscal crash and its ultimate closure by US regulators.
Federal Deposit Insurance Corporation (FDIC) said SVB offices would reopen today, Monday 13th of March for all insured depositors to have full access to their insured deposits. However, most of the bank’s deposits are feared to be uninsured. According to reports, 89% of its deposits were uninsured as at the end of 2022.
In response, the US regulators have assured that uninsured depositors will get an advance dividend next week. The remaining depositors of uninsured funds will get a receivership certificate that will enable them to get future dividend payments as the FDIC sells off assets of the bank. Today, SVB UK sold to English Bank, HSBC for £1 nominally.
Perhaps the biggest bank failure since the Washington Mutual collapse of 2008, SVBs collapse affects companies like Roku, Payoneer, Life360, among others. In 2021, the bank invested $100m in Chipper cash and says about itself, “we bank nearly half of all US venture-backed startups, and 44% of the US venture-backed technology and healthcare companies that went public in 2022 are SVB clients.”
