Financial Jitters After Silicon Valley Bank Is Closed by Regulators

Silicon Valley Bank has made history and not in a good way. The bank was shuttered by regulators on the heels of a Friday morning collapse and was the second-biggest bank failure in the history of the U.S. An announcement by the bank that it was seeking fresh capital caused a run on deposits.

According to The Wall Street Journal, the FDIC took control of SVB and moved the deposits to the Deposit Insurance National Bank of Santa Clara, an institution created by the entity. Insured depositors will be able to access their funds on Monday. Those who have funds that exceed FDIC insurance will be given receivership certificates for their uninsured balances. The bank had announced massive losses on its bond holdings and made plans to right itself. That caused its stock to drop and the withdrawal run by customers. The bank said it had lost almost $2 billion selling assets because of a decline in deposits. That, in turn, caused an 80% drop in its stock, which fueled the run by clients.

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The parent company, SVB Financial Group, had planned a $2.25 billion share sale for this morning, but scuppered that plan and went in frantic search of a buyer. At that point, the California Department of Financial Protection and Innovation closed the bank and turned it over to the FDIC. The entire incident had a ripple effect. The Journal notes that on Thursday, four of the largest banks in the nation lost approximately $52 billion in market value, with the broader index of bank stocks tanking as well. In fact, bank stocks plunged so quickly this morning that “a number was halted for volatility.” SVB employees were told to work from home until further notice this morning.

The New York Post said that following the rush on withdrawals, the police were called SVB’s Manhattan branch as people tried to withdraw their funds. Bloomberg reported on Thursday that Peter Thiel at the Founders Fund was warning investors to pull their money from SVB.