The sudden collapse of a little-known, California-based tech lender fueled market chaos on Friday and sparked fears of a wider contagion that some experts worry could upend the US banking sector.
Silicon Valley Bank — a 40-year-old lender to startups and venture capitalists — became the second-biggest bank casualty in US history as it was abruptly shut down on Friday by the California Department of Financial Protection and Innovation, which placed its remaining assets under the Federal Deposit Insurance Corp.’s control.
SVB’s finances went south at warp speed after it disclosed a $1.8 billion loss on its bondholdings this week. CEO Greg Becker had urged investors on a Thursday conference call to “stay calm” and not “panic” — but jittery clients were already scrambling to yank large balances in excess of the FDIC’s $250,000 insured cap.
The FDIC on Friday said insured depositors will “have full access to their insured deposits no later than Monday morning.” The feds added that SVB’s official checks will “continue to clear” despite the closure.
Uninsured deposits, meanwhile, totaled a whopping $151 billion as of Dec. 31, according to public filings.
“Lot of people I know lost their $,” one frantic tech entrepreneur told The Post in a Friday text message. “Friend’s startup had $20M in bank, couldn’t get it out.”
“Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors,” the FDIC said.
Billionaire Peter Thiel’s Founders Fund and other tech luminaries had urged startups to pull their cash or risk losing it entirely ahead of the bank’s failure, which came amid a major slowdown in the initial public offering market this year.
The crisis prompted ominous warnings from other market heavyweights such as the eccentric investor Michael Burry of “The Big Short” fame, who tweeted, ‘”It is possible today we found our Enron.” Hedge fund billionaire Bill Ackman called for a government bailout of the bank.
In an interview with Bloomberg on Friday, ex-Treasury Secretary Larry Summers said SVB’s implosion shouldn’t pose a systemic risk to the US financial system as long as depositors are made whole.
“I don’t see — if this is handled reasonably, and I have every reason to think that it will be — that this will be a source of systemic risk,” Summers said.
Still, while SVB’s depositors are tech executives rather than mom-and-pop investors, the chaos unleashed by the bank’s downfall could spread to other institutions and spell trouble for the broader economy.
“Investors are concerned on where they should be putting their money in and it is not good for the smaller banks when these questions are getting asked by customers,” Christopher Whalen, chairman of Whalen Global Advisors, told Reuters.
“It has a ripple effect and other smaller banks may suffer,” he added.
SVB’s downfall marked the largest bank failure since the Great Recession and the second-largest of all-time in terms of asserts, trailing only the doomed Washington Mutual. It is the first FDIC-insured institution to crumble since Almena State Bank in 2020.
As of the end of last year, SVB had approximately $209 billion in total assets and roughly $175.4 billion in total deposits, according to the agency. SVB ranked as the 16th-largest bank in the US, according to the Federal Reserve.
Earlier this week, SVB disclosed a $1.8 billion loss after conducting a $21 billion fire sale of its bond assets.
Trading of SVB Financial shares remained halted on Friday morning following a CNBC report that the embattled firm was attempting to sell itself. The bank tapped advisers to assist with a potential sale after failing to raise capital.
Goldman Sachs worked with SVB on a deal to sell shares at $95, but the arrangement had fallen apart by Friday as more investors pulled out their funds, the Wall Street Journal reported.
SVB has not responded to multiple requests for comment.
The bank’s rapid descent into insolvency sparked a sharp selloff in US stocks – with the nation’s four largest banks losing a combined $52 billion in market capitalization. Shares of Goldman Sachs and Bank of America were hit hard.
“Investors are fearing a repeat of 2008-style sort of dynamics, and this selloff in the banking sector has raised fears of systemic risk,” Karl Schamotta, chief market strategist at Corpay, told Reuters.
SVB’s website note that it “bank[s] 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.”
In an email to clients that was reviewed by The Post, Silicon Valley venture firm RRE admitted, “While we work to understand when and how normal banking operations may resume, we are concerned about our companies’ short term access to capital.”
Notable firms listed as SVB customers include Pinterest, ZipRecruiter and Shopify.
In New York, police were reportedly called to a local SVB branch on Friday morning after depositors swarmed the building in a bid to withdraw their money. Journalist Eric Newcomer reported that at least one person was forced to leave the facility.
One Boston-based tech CEO, FarmboxRx founder Ashley Tyrner, told The Post she had been unable to lock into an SVB account where she had at least $10 million in deposits – describing the saga as the “the worst 18 hours of my life.”