NEW YORK (AP) – The Federal Deposit Insurance Corporation seized the assets of Silicon Valley Bank on Friday, marking the biggest bank failure since Washington Mutual during the 2008 financial crisis.
The bank failed after depositors — mostly tech workers and venture capital-backed companies — began withdrawing their money, giving the bank a run.
Silicon Valley was heavily exposed to the technology industry, and there is little chance of contagion in the banking sector, as there was in the months leading up to the Great Recession more than a decade ago. Large banks have sufficient capital to avoid a similar situation.
The FDIC ordered the closure of Silicon Valley Bank and immediately took a position on all deposits at the bank on Friday. The bank had $209 billion in assets and $175.4 billion in deposits at the time of failure, the FDIC said in a statement. It was unclear how much of the deposits were above the current $250,000 policy limit.
Notably, the FDIC did not announce a buyer for Silicon Valley’s assets, which is typical when there is an orderly resolution of a bank. The FDIC also seized the bank’s assets in the middle of the business day, a sign of how serious the situation had become.
Silicon Valley Bank’s financial health was increasingly in doubt this week after the bank announced plans to raise up to $1.75 billion to bolster its capital position amid concerns about higher interest rates and the economy. Shares of SVB Financial Group, the parent company of Silicon Valley Bank, had plunged nearly 70% before trading was halted before the opening bell on Nasdaq.
CNBC reported that attempts to raise capital failed and the bank was now looking to sell itself.
Silicon Valley bank was not a small bank, it is the 16th largest bank in the country, with $210 billion in assets. It serves as a key financing channel for venture capital-backed companies, which have been hit hard in the past 18 months as the Federal Reserve has raised interest rates and made riskier technology assets less attractive to investors.
Venture capital-backed companies were reportedly advised to pull at least two months’ worth of “burn” cash out of Silicon Valley Bank to cover their expenses. Typically, VC-backed companies are not profitable, and how quickly they use the money they need to run their businesses—their so-called “burn rate”—is a typically important metric for investors.
Diversified banks such as Bank of America and JPMorgan pulled out of an early crisis due to data released Friday by the Labor Department, but regional banks, especially those with heavy exposure to the technology industry, were in decline.
Still, it’s been a bruising week. Shares of major banks are down between 7% and 12% this week.