Customers tried to get their money out of Silicon Valley Bank because of its weak balance sheet and problems in the startup sector as a whole.
SVB announced on Wednesday that it would sell $1.75 billion worth of shares. This came after the company lost a lot of money when it sold a $21 billion bond portfolio. This made venture capital firms and startups with ties to the company worried about the safety of their assets. SVB is the largest bank in Silicon Valley and the 16th largest bank in the United States. It gives loans to almost half of the venture-backed technology and healthcare companies.
The California Department of Financial Protection and Innovation closed SVB, the Federal Deposit Insurance Corporation said on Friday. A press release from the government-backed company says that insured depositors will be able to get their money by Monday morning, and non-insured depositors can expect an advance dividend in the next week.
“At the time of closing, it was not known how much of the deposits were more than the insurance limits,” the entity said. “The FDIC will figure out the number of uninsured deposits once it gets more information from the bank and its customers.”
Axios says that if SVB went under, it would be the largest bank failure since Washington Mutual in late 2008.
In the past few months, the economy as a whole has been in a lot of trouble, which has made it harder for startups to get money and put more financial pressure on the company. According to a report from Reuters, SVB Financial Group CEO Gregory Becker told investors in a letter that “client cash burn has stayed high and increased in February, which led to fewer deposits than expected.”
This week, shares of SVB fell by more than 60% before the government put a stop to trading on Friday morning. This week, shares of First Republic Bank have also fallen by more than 23%. Shares of JPMorgan Chase and Bank of America have fallen by 6% and 10%, respectively, as investors worry about a ripple effect in the financial sector as a whole.
According to a report from The Information, SVB told several clients on Thursday that wire transfers could be delayed and that the company’s customer service was mostly unavailable. A customer service rep told one founder that “systems are down” and “wires are backed up,” but others were able to get their money out.
According to data from the Federal Reserve, SVB has about $209 billion in assets when they are all added together. According to a report from Bloomberg, venture capital firms like Founders Fund, Coatue Management, Union Square Ventures, and Founders Collective told their portfolio companies to get rid of their assets. Sequoia Capital, on the other hand, reaffirmed its policy of diversification.
During a short call with investors on Thursday afternoon, Becker told clients to “stay calm.”
Bill Ackman, the CEO of Pershing Square Capital Management, said on Thursday that the government should think about giving SVB a bailout package. He said that the company’s failure could “destroy an important long-term driver of the economy.” He also said that “the dominoes” might “keep falling” if other banks suddenly get a lot of people wanting to take money out.
During the Great Recession, when banks were overexposed to subprime mortgages, both former President George W. Bush and former President Barack Obama put in place government bailouts for commercial and investment banks.