Banking Industry Turmoil Worsens: Silicon Valley Bank (SVB) Closes, SVB Financial Shares Halted
Silicon Valley Bank (SVB) has become the latest victim of the turbulence in the banking industry, as regulators move in to close the bank and appoint the Federal Deposit Insurance Corporation (FDIC) as receiver. SVB, the financial partner of the innovation economy, was a major player in the technology startup space, having built relationships with the VC community over its four decade existence.[0] The bank's closure is due to deposit outflows and a failed attempt to raise new capital, sparking fears of a bank run.
On Friday morning, trading of SVB Financial (SIVB) stocks – the parent company of Silicon Valley Bank – was suspended, following a sharp decline of 60% the day before and another 68% in pre-market trading.[1] It is now seeking to raise $2.25 billion of new capital to cover the new losses.[2]
On Thursday, billionaire hedge fund manager Bill Ackman floated the idea of a government bailout for the bank in a tweet saying, “If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered.”[3] While Ackman later dismissed the idea that another bank would save SVB, citing the example of JPMorgan taking over Bear Stearns, Treasury Secretary Janet Yellen acknowledged the industry turmoil Friday, saying there are “a few” banks the department is closely watching.[1]
The yield on the 10-year Treasury decreased by 5 basis points to 3.92%. The yield of a two-year Treasury bond decreased drastically by 16 basis points, settling at 4.9%, while the yield of a six-month T-bill declined slightly by 3 basis points, reaching 5.28
The cash crunch felt by more startups may have exacerbated the circumstances at Silicon Valley Bank.[4] This could freeze their whole operations, driving startups and venture capital firms to consider pulling their money from Silicon Valley Bank to protect their money.[5]
Fed Chair Jerome Powell's comments this week, suggesting that the central bank will have to raise rates higher than previously expected, caused markets to price in an anticipated 0.50% rate hike later this month.[6] This creates a problem for banks because higher rates lower the value of their existing bonds.[1]
SVB Financial Group (SVB) is the holding company for all business units and groups.[7] It is deeply embedded in the US startup scene, as the only publicly traded bank focused on Silicon Valley and tech startups.[8]
0. “Venture capitalists urge startups to withdraw funds from crisis-laden Silicon Valley Bank” CNBC, 10 Mar. 2023, https://www.cnbc.com/2023/03/10/vcs-urge-startups-to-withdraw-funds-from-silicon-valley-bank.html
1. “Regulators close Silicon Valley Bank after bank fails to raise new capital” Yahoo Money, 10 Mar. 2023, https://money.yahoo.com/regulators-close-silicon-valley-bank-after-bank-fails-to-raise-new-capital-165322606.html
2. “Why Silicon Valley Bank's crisis is rattling America's biggest banks” Yahoo News, 10 Mar. 2023, https://news.yahoo.com/why-silicon-valley-banks-crisis-is-rattling-americas-biggest-banks-121159393.html
3. “Silicon Valley Bank meltdown sparks contagion fears: ‘We found our Enron'” New York Post , 10 Mar. 2023, https://nypost.com/2023/03/10/silicon-valley-bank-meltdown-sparks-contagion-fears
4. “Silicon Valley Bank collapse sends tech startups scrambling” CNN, 10 Mar. 2023, https://www.cnn.com/2023/03/10/tech/silicon-valley-bank-tech-panic/index.html
5. “‘Too big to fail’ is back as Bill Ackman says government should consider a Silicon Valley Bank bailout” Fortune, 10 Mar. 2023, https://fortune.com/2023/03/10/bill-ackman-twitter-silicon-valley-bank-bailout-startups
6. “Yellen says Treasury Department ‘carefully' watching crisis at ‘a few banks'” Yahoo News, 10 Mar. 2023, https://news.yahoo.com/yellen-says-treasury-department-carefully-watching-crisis-at-a-few-banks-153243680.html
7. “Silicon Valley Bank Has Failed: What Bank Collapse Means For Your Money (NASDAQ:SIVB)” Seeking Alpha, 10 Mar. 2023, https://seekingalpha.com/article/4586563-svb-financial-failed-big-bank-collapse
8. “What Triggers a Run on Silicon Valley Bank? SVB Collapse Explained” Bloomberg, 10 Mar. 2023, https://www.bloomberg.com/news/articles/2023-03-10/why-svb-was-hit-by-a-bank-run-and-where-it-could-lead-quicktake
