Silicon Valley Bank Collapse: What We Know

On Friday, Silicon Valley Bank, a lender to some of the biggest names in tech, became the largest bank to fail since the 2008 financial crisis.

The move brought nearly $175 billion worth of customer deposits under the control of the Federal Deposit Insurance Company.

Here’s what we know so far about this developing story.

Regulators take over the bank.

California’s Department of Financial Protection and Innovation shut down Silicon Valley Bank on Friday, less than two days after the bank tried to convince customers not to withdraw their money over fears they were running low on available cash. The regulator appointed the Federal Deposit Insurance Corporation as the receiver.

The FDIC created a new bank, the National Bank of Santa Clara, to hold the deposits and other assets of the failed. The agency said in a press release that the new unit would be operational by Monday morning and that checks written by the old bank would continue to be cashed.

The bank was caught out by higher interest rates.

The Silicon Valley Bank, awash with cash from high-flying startups, bought huge amounts of bonds more than a year ago. Like other banks, Silicon Valley Bank kept a small portion of deposits and invested the rest in hopes of a return.

That had been working well until last year when the Federal Reserve began raising interest rates to cool inflation. At the same time, seed funding began to dry up, putting pressure on many of the bank’s customers – who then began withdrawing their money. To pay these demands, Silicon Valley Bank was forced to sell some of its investments at a time when their value was declining. In its surprise disclosure on Wednesday, the bank said it lost nearly $2 billion.

The failure of Silicon Valley Bank raises concerns for other banks.

Silicon Valley Bank is small compared to the country’s largest banks — it has $209 billion financial assets pales in comparison to the more than $3 trillion at JPMorgan Chase. But bank runs can happen when customers or investors panic and withdraw their deposits. Perhaps the most immediate concern late this week was that the collapse of Silicon Valley Bank would deter customers from other banks.

Shares in San Francisco-based First Republic Bank and New York-based Signature Bank fell more than 20 percent on Friday. But shares of some of the country’s biggest banks including JPMorgan, Wells Fargo and Citigroup rose on Friday after falling on Thursday.

Young companies are struggling to get their money out of the bank.

As the startup ecosystem tries to make sense of the Silicon Valley bank implosion, some entrepreneurs whose funds are frozen at the bank are resorting to borrowing to pay their salaries. Silicon Valley Bank has provided banking services to nearly half of venture capital-backed technology and life science companies, as well as over 2,500 venture capital firms, including Lightspeed, Bain Capital and Insight Partners, according to its website.