California-based Silicon Valley Bank (SVB) has been shut down by the California Department of Financial Protection and Innovation (DFPI), after a swift collapse.
DFPI has seized SVB under the California Financial Code section 592, citing the bank’s inadequate liquidity and insolvency.
The regulator placed the bank under the receivership of the Federal Deposit Insurance Corporation (FDIC), which would start paying dividends for uninsured deposits.
The collapse of SVB has sent shock waves across startups in tech, banking, and other industries, as they are unable to withdraw their deposits from the bank.
According to the New York Times report, it marks the largest bank failure since the 2008 financial crisis, and the second-largest in US history.
Last week, the state-chartered commercial bank, under the supervision of the DFPI, voluntarily started the process of liquidation.
DFPI Commissioner Clothilde Hewlett, then said: “The Department of Financial Protection and Innovation is monitoring the situation closely to facilitate the safe and expeditious voluntary liquidation of Silvergate Bank.
“The Department is evaluating compliance with all financial laws, as well as safety and soundness obligations, and is working closely with relevant Federal counterparts.”
Established in 1983, SVB was a commercial bank based in Santa Clara, California, with total assets of $209bn and total deposits of $175.4bn, as of 31 December 2022.
Nearly half of US venture capital-backed healthcare and technology companies were financed by SVB, reported CNN.
During the Covid-19 pandemic, SVB purchased long-term Treasury bonds, whose current market value declined due to a rise in rates during the 2021–2023 inflation surge.
On 8 March, SVB announced the sale of securities worth around $21bn, borrowed $15bn, and planned an emergency sale of some of its treasury stock to raise $2.25bn, to pay its depositors.
The announcement, combined with warnings from Silicon Valley investors, caused a bank run by the following day, leading to bank collapse.
The US authorities launched emergency measures to restore confidence in the banking system.
In a separate development, HSBC UK Bank is reportedly acquiring SVB’s UK subsidiary SVB UK, for £1.
SVB UK had loans of around £5.5bn and deposits of around £6.7bn as of 10 March 2023.
