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Federal regulators shut down Silicon Valley Bank: Biggest bank bust since 2008 raises fears of financial crisis

2023-03-10T17:29:03.561Z


The 16th largest bank in the country, focused on technology companies, lost 60% of its value. Your deposits are now in the custody of federal authorities.


By Brian Cheung and Rob Wile -

NBC News

Silicon Valley Bank (SVB), a financial institution focused on lending money to emerging technology companies, lost more than 60% of its stock value on Tuesday before its listing was frozen following a failed operation, and appeared to be trying to sell it to another bank, according to CNBC, when on Thursday the California Department of Financial Innovation and Protection announced its closure to protect deposits.

The money will be transferred to the Federal Deposit Insurance Corporation, which will create a new entity to place those who are insured.

The crisis at Silicon Valley Bank, the 16th largest bank in the country, based in Santa Clara, ignited fears that its fall would drag down the markets and in particular the technology sector.

The shares of other banks also lost value on Thursday due to this crisis, reinforcing concern about the exposure to risks of the financial sector when a recession due to inflation and the aggressive rise in interest rates has been feared for months.

Fearing a "run on the banks" (when customers withdraw money fearing a bank will stop operating, thus causing it to fail) led investors to divest their shares of other institutions, a nervousness aggravated by the plans to shut down Silvergate, a much smaller bank heavily focused on the cryptocurrency industry.

Silicon Valley Bank, based in San Francisco, California, is a major lender to start-ups.Bloomberg via Getty Images

The crisis was triggered earlier this week, when SVB announced the sale of about $21 billion worth of securities and proposed offering more than $1 billion worth of shares, all to raise funds for "general corporate purposes."

The move surprised investors, who wondered why the bank needed to raise so much money all of a sudden.

It also raised concerns among depositors, many of whom doubted their money was safe.

Web outlet The Information reported on Thursday that SVB CEO Greg Becker

was asking venture capital clients to "remain calm"

as some tech founders had begun to clarify whether their companies did or did not have money in the bank.

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Many of the bank's depositors are technology companies and venture capital funds, and it does not depend like others on family savings accounts.

Its technology-focused strategy helped it take advantage of the massive growth in the industry before and during the pandemic.

But now the tech sector is pulling back, with layoffs.

on a large scale, while raising interest rates by the Federal Reserve, affecting borrowing costs.

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“The issue here is what is the ripple effect of problems outside the banking industry, within the banks themselves,” said Mike Mayo, an analyst at Wells Fargo Securities.

“Banks are still the heart of the economy, and if there are problems, they will feel it,” he added. 

May warned that the banking system in general has stronger protections than 15 years ago, due to policies implemented after the last financial crisis, such as regulations imposing stricter capital and liquidity requirements.

Silicon Valley Bank is subject to even more stringent regulations as one of the top 20 banks in the country by total assets.

Like other member banks of the Federal Deposit Insurance Corporation, deposits at the bank are also insured up to $250,000 per depositor.

Source: telemundo

All news articles on 2023-03-10

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