Silicon Valley bank arrested by FDIC as depositors withdraw cash

The Silicon Valley Bank was the 16th largest bank in the country with $210 billion in assets.

NEW YORK. On Friday, the Federal Deposit Insurance Corporation seized the assets of Silicon Valley Bank, the bank’s largest bankruptcy since Washington Mutual at the height of the 2008 financial crisis.

The bank collapsed after depositors—mainly tech workers and venture capital firms—began to withdraw their money, leading to flight from the bank.

Silicon Valley has been heavily influenced by the tech industry and there is little chance of contagion in the banking sector, as was the case in the months leading up to the Great Recession more than a decade ago. Large banks have enough capital to avoid this situation.

The FDIC ordered the closure of Silicon Valley Bank and on Friday immediately confiscated all deposits at the bank. At the time of the bankruptcy, the bank had $209 billion in assets and $175.4 billion in deposits, the FDIC said in a statement. It is not clear at this time how much of the deposits exceed the $250,000 insurance limit.

Notably, the FDIC has not announced a buyer of the Silicon Valley assets, which usually happens when a bank closes on schedule. The FDIC also seized the bank’s assets in the middle of the business day, a testament to how dire the situation has become.

Silicon Valley Bank’s financial health has become increasingly precarious this week after the bank announced plans to raise up to $1.75 billion to bolster its capital position amid concerns about higher interest rates and the economy. Shares of SVB Financial Group, the parent company of Silicon Valley Bank, fell nearly 70% before trading was halted ahead of the opening of trading on the Nasdaq.

CNBC reported that attempts to raise capital have failed and the bank is now trying to sell itself.

The Silicon Valley Bank was not a small bank, it is the 16th largest bank in the country with $210 billion in assets. It acts as the primary financial conduit for venture capital-backed companies, which have been hit hard over the past 18 months as the Federal Reserve raised interest rates and made riskier tech assets less attractive to investors.

VC-backed companies have reportedly been advised to withdraw at least two months’ worth of “burnt” funds from Silicon Valley Bank to cover their expenses. Typically, venture capital-backed companies don’t turn a profit, and how quickly they use the money they need to run their business – their so-called “burnout rate” – is usually an important metric for investors.

Diversified banks such as Bank of America and JPMorgan emerged from an early downturn thanks to data released Friday by the Labor Department, but regional banks, especially those heavily linked to the technology industry, have been in decline.

However, it has been a tough week. Shares of the largest banks this week are reduced by 7-12%.

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