Why US closed Silicon Valley Bank?

On Friday, US regulators shut down Silicon Valley Bank, sending global banking shares sputtering as markets worried about possible contagion from America’s biggest banking failure since the 2008 financial crisis.

After a run on deposits made it impossible for the medium-sized bank to stay afloat on its own, US authorities swooped in and seized SVB’s assets. SVB had been a key lender to US startups since the 1980s.

SVB specialized in startup financing and had grown to become the 16th largest US bank by assets by the end of 2022, with $209 billion in assets and approximately $175.4 billion in deposits.

Its failure not only represents the largest bank failure since Washington Mutual in 2008 but also the second-largest failure for a retail bank in the United States.
Treasury Secretary Janet Yellen called an emergency meeting of top US banking regulators in response to the sudden collapse.

“Secretary Yellen expressed full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient and regulators have effective tools to address this type of event,” a Treasury statement said.

Based in the shadow of the world’s biggest tech companies, SVB’s travails have raised fears that more banks may face doom as the fallout from high inflation and hiked interest rates squeezes weaker lenders.

In front of the Silicon Valley Bank headquarters on a rainy day in Santa Clara, California, nervous customers spoke in small groups wondering how they could withdraw their money as news spread of the government seizure.

One customer dressed in a t-shirt and sweatpants, and who spoke on condition of anonymity, said he used the bank for payroll at his startup.

“It’s not a good situation. A lot of really top tier (venture capital firms) have very high amounts of exposure here,” he said, adding that he was worried for his employees.

A day after the four largest US banks lost $52 billion in market value due to signs of trouble at SVB, European banking titans were similarly in the red, with Deutsche Bank down 10% at one point.

However, shares in Wall Street heavyweights Bank of America, Wells Fargo, and Citibank seesawed on Friday, with Yellen telling a congressional panel that she was “monitoring” a few banks.

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The California Department of Financial Protection and Innovation (DFPI) promptly closed SVB and appointed the Washington-based Federal Deposit Insurance Corporation to take over.

The crisis measure protects customers with up to $250,000 in deposits and crucially buys time to find a potential buyer of whatever remains of the embattled Silicon Valley lender.