Silicon Valley Bank Collapses, FDIC Takes Over
On Friday, March 12th, 2023, Silicon Valley Bank (SVB), a fixture in the venture capital space for decades, collapsed and was taken over by the Federal Deposit Insurance Corporation (FDIC). The California Department of Financial Protection and Innovation closed SVB, which was the 16th largest bank in the U.S., had $209 billion in total assets at the end of 2022, after a dramatic decline in its stock price on Thursday.
The bank’s chief risk officer stepped away from her role early last year and the bank did not hire a replacement until January of this year. On Wednesday, SVB's announcement of a plan to raise billions in order to cover significant losses caused a great uproar among investors and tech founders who had received their support. The company's stock dropped roughly 60% on Thursday and another 20% in after-hours trading, prompting a halt in trading when the market opened on Friday. Hours after news broke that SVB was having difficulties in finding purchasers for their sale, the government took over.
The FDIC is now acting as a receiver to the bank, typically meaning it will liquidate the bank’s assets to pay back its customers, including depositors and creditors. All insured depositors will have full access to their insured deposits no later than Monday morning. The FDIC said it would pay uninsured depositors an “advance dividend within the next week.” However, many Silicon Valley startups had millions, or even hundreds of millions of dollars deposited at the bank—money they used to run their companies and pay employees.
The collapse of SVB Financial Group has sparked a wave of fear across the country, with many speculating which lender will be the next victim. Bill Ackman, the founder of Pershing Square Capital Management, took to Twitter to express his concerns about the potential for a domino effect of bank failures. He warned that “the risk of failure and deposit losses here is that the next, least well-capitalized bank faces a run and fails, and the dominoes continue to fall.”
Crypto-focused lender Silvergate Capital has also closed down, citing turmoil in digital assets. The FDIC has advised all customers to insure deposits up to $250,000, but many tech companies have far more than that on deposit at the bank.
0. “FDIC's Takeover of SVB Sparks Bank Runs, BoA & Wells Fargo Fears” TMZ, 11 Mar. 2023, https://www.tmz.com/2023/03/11/fdic-takeover-silicon-valley-bank-run-svb-boa-wells-fargo-deposit
1. “Billionaire Bill Ackman on SVB collapse: Government has 48 hours to fix ‘irreversible mistake'” Fox Business, 12 Mar. 2023, https://www.foxbusiness.com/markets/billionaire-bill-ackman-svb-collapse-government-has-48-hours-fix-irreversible-mistake
2. “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
3. “Takeaways from America's second-largest bank failure” CNN, 11 Mar. 2023, https://www.cnn.com/2023/03/11/business/svb-collapse-roundup-takeaways/index.html
4. “PR-16-2023 3/10/2023” FDIC, 10 Mar. 2023, https://www.fdic.gov/news/press-releases/2023/pr23016.html
5. “Most of Silicon Valley Bank's Deposits Were Uninsured” TIME, 10 Mar. 2023, https://time.com/6262009/silicon-valley-bank-deposit-insurance/
6. “Bill Ackman warns US gov't: Fix mistake in ‘48 hours’ or face ‘destruction’” Cointelegraph, 12 Mar. 2023, https://cointelegraph.com/news/bill-ackman-warns-us-gov-t-fix-mistake-in-48-hours-or-face-destruction
7. “‘Kids want…,’ Adani CFO pot-shot at US investor Ackman seeking bailout for SVB” Hindustan Times, 12 Mar. 2023, https://www.hindustantimes.com/business/kids-want-adani-cfo-potshot-at-us-investor-ackman-seeking-bailout-for-svb-101678607155356.html
8. “Wall Street banks including JPMorgan, Bank of America see $55B value wipeout” Markets Insider, 10 Mar. 2023, https://markets.businessinsider.com/news/stocks/jpmorgan-bank-of-america-biggest-banks-market-cap-value-wipeout-2023-3
9. “Investors implore the government to step in after Silicon Valley Bank failure” CNBC, 11 Mar. 2023, https://www.cnbc.com/2023/03/11/silicon-valley-bank-failure-has-investors-calling-for-government-aid.html