Shockwaves Through the Tech Sector: Silicon Valley Bank Closes with FDIC Taking Control
Silicon Valley Bank, a lender that had serviced the venture capital space for decades, was closed by California's banking regulators and put into receivership under the Federal Deposit Insurance Corporation (FDIC) on Friday.[0] This marked the second-largest bank failure in US history and sent shock waves through the tech sector.
The bank had warned earlier in the week of a cash crunch and attempted to raise $2.25 billion in capital to cover losses. However, this led to widespread panic among investors and tech founders and precipitated a sharp decline in the bank's stock price, falling by 60% in Thursday trading and 20% in after-hours trading.[1] By midday, the FDIC had taken control of the bank, with the only larger failure in American history being Washington Mutual in 2008.[2]
The FDIC said it will cover up to $250,000 per depositor, with payouts to begin as early as Monday.[3] But many tech companies had far larger uninsured amounts at the bank, leaving many people uncertain how they will be able to retrieve the rest of their funds. The FDIC said customers with deposits greater than $250,000 will receive an “advance dividend” for a portion of their funds along with “certificates” accounting for their uninsured funds.
Treasury Secretary Janet Yellen ruled out a federal bailout for Silicon Valley Bank, saying in an interview with CBS' “Face The Nation” that “we’re not going to do that again.”[4] The collapse of the bank sent shockwaves throughout the tech industry, which relied heavily on the bank for financing.
The FDIC will pay uninsured depositors an advance dividend within the next week. The agency is also in charge of liquidating the bank’s assets to pay back its customers, including depositors and creditors. And, in an ironic twist of fate, Silicon Valley Bank employees received their annual bonuses on Friday just hours before the government took control of the company.[5]
0. “Silicon Valley Bank gave company-wide bonuses hours before it collapsed: report” Fox Business, 12 Mar. 2023, https://www.foxbusiness.com/politics/silicon-valley-bank-company-wide-bonuses-hours-before-collapsed-report
1. “Silicon Valley Bank had no official chief risk officer for 8 months while the VC market was spiraling” Fortune, 10 Mar. 2023, https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer
2. “Most of Silicon Valley Bank's Deposits Were Uninsured” TIME, 10 Mar. 2023, https://time.com/6262009/silicon-valley-bank-deposit-insurance/
3. “Treasury Secretary Janet Yellen says U.S. government won't bail out Silicon Valley Bank” CNBC, 12 Mar. 2023, https://www.cnbc.com/2023/03/12/treasury-secretary-janet-yellen-says-us-government-wont-bail-out-silicon-valley-bank.html
4. “Treasury secretary rules out bailout for Silicon Valley Bank” CNN, 12 Mar. 2023, https://www.cnn.com/2023/03/12/politics/janet-yellen-bailout-silicon-valley-bank-cnntv/index.html
5. “SVB said to pay out bonuses just before FDIC seizure” Axios, 11 Mar. 2023, https://www.axios.com/2023/03/11/silicon-valley-bank-paid-bonuses-fdic
