US regulators shut down Silicon Valley Bank (SVB). Took control of customer deposits in the biggest bank failure since 2008.
The moves came as the company, a key technology lender. Tried to raise cash to stem losses from asset sales that are being hit by higher interest rates.
His troubles led to rapid customer withdrawals and raised fears about the state of the banking system.
Officials said they did so “to protect insured depositors.”
Silicon Valley Bank was facing “inadequate liquidity and insolvence. When the acquisition was announce in California, where the company is based.
The Federal Deposit Insurance Corporation (FDIC). Which normally protects deposits up to $250,000, said it had taken about $175bn (£145bn) in deposits at the bank. The 16th largest in the US.
Bank offices would reopen and customers with insured deposits would get access to funds “on Monday morning at the latest. He said, adding that the proceeds from the sale of the bank’s assets would go to uninsured depositors.
Since many of the company’s clients are in this situation. Many companies have tied up their money in the bank because of the situation, worrying about its future.
“I’m on my way to the branch to look for my money. My transfer failed yesterday. You know those moments when you get really confuse and you’re not sure? This is one of those moments,” one startup founder told the AZ24 News.
Another founder of a healthcare startup said, “Literally three days ago we put a million dollars in our bank account… And then this happens.”
He managed to transfer the money to another account 40 minutes before the deadline. “He was on hold. Then this morning he was there. But I know other people who did the same thing a few minutes after me and he didn’t move.”
“It was a crazy situation,” he said.
The collapse came after SVB said it was trying to raise $2.25bn (£1.9bn). To stem losses from the sale of assets hit by higher interest rates, mainly US Treasuries.
The news caused investors and customers to flee the bank. Shares suffered their biggest one-day drop in history on Thursday. Falling more than 60%, before falling further in after-hours trading before trading was halt.
Concerns that other banks could face similar problems led to a broad sell-off in bank stocks around the world on Thursday and early Friday. US Treasury Secretary Janet Yellen said in a speech in Washington on Friday. That she was watching “recent developments” at Silicon Valley banks and others “very cautiously”. “.
He later met with key banking regulators. Where the Treasury said he had “full confidence in banking regulators to respond. Noted that the banking system remains resilient. Is the banking partner of almost half of the US venture-based technology. Healthcare companies listed on the stock exchange last year.
Started as a California bank in 1983, the company has grown rapidly over the past decade. It currently employs more than 8,500 people worldwide, although most of its operations are located in the United States.
But the bank is under pressure as higher interest rates make it harder for start-ups to raise money from private equity. Equity sales and more customers have withdrawn deposits, which increased this week.
The fallout from the disaster was widespread in Silicon Valley, as companies questioned what the crash meant for their finances.
Even businesses with no direct business activity are affect. Such as customers of Rippling, a payroll software company that uses SVB. He warned that existing payments could be delay and said he would switch to another bank.
SVB’s British subsidiary announce that it will be liquidate from Sunday evening.
The Bank of England said Silicon Valley Bank UK would stop paying or accepting temporary deposits, a move. That would allow individual depositors to receive payments of up to £85,000 from the UK’s deposit insurance scheme.
“SVBUK has a limited presence in the UK and no significant operations supporting the financial system,” the BoE added. As well as dealing a major blow to the technology sector, SVB’s collapse sparked concerns about wider risks to banks as bond markets followed rapid interest rate hikes.
Central banks around the world, including the Bank of England and the Bank of England, have raised borrowing costs significantly over the past year as they try to curb inflation.
But when interest rates rise, the value of existing bond portfolios typically declines.
These declines mean that many banks face significant potential losses – although price changes would not normally be a problem unless other pressures force companies to sell stakes.
Shares of some major U.S. banks rose on Friday, but the sell-off continued to hurt smaller companies and halted trading in names such as Signature Bank and others.
The tech-heavy Nasdaq fell 1.7% on the day, while the S&P 500 fell 1.4% and the Dow fell 1%.
Major European and Asian indices also fell, with the FTSE 100 down 1.6%.
According to Alexander Yokum, an equity research analyst at CFRA, banks specializing in certain industries are vulnerable to rapid withdrawals like the one that hit SVB.
“Silicon Valley Bank wouldn’t have lost money if they didn’t run out of cash to get back to their customers,” he said. “The bottom line was that people wanted money and it wasn’t there – they invested and those investments fell.”
“I know there’s a lot of fear, but it’s definitely company-specific,” he said.
“The average Joe should be fine,” he added, but he said it would likely be even harder for tech companies to raise money. “Not good,” he said.