US closes California banks in biggest failure since 2008

To Natalie Sherman & James Clayton for the BBC

US regulators shut down Silicon Valley Bank (SVB), controlling customer deposits in the largest US bank failure since 2008.

The move comes as the major tech lender was rushing to raise money to cover losses from the sale of assets impacted by rising interest rates.

That trouble has led to a flood of customer withdrawals and concerns about the state of the banking sector.

Officials said they acted to “protect the insured.”

Silicon Valley Bank faces “insufficient liquidity and insolvency,” said banking regulators in California, where the company is headquartered, when it announced the acquisition.

The Federal Deposit Insurance Corporation (FDIC) typically insures deposits of up to $250,000 and is responsible for approximately $175 billion (NZ$285 billion) of deposits held at the 16th largest bank in the United States. said there is.

Bank offices will reopen and customers with insured deposits will have access to their funds “by Monday morning at the latest,” he said, adding that funds from the sale of bank assets would go to uninsured depositors. Added that it will be sent.

investor flight

With many of the company’s customers in that position, the situation has left many businesses with their funds tied up in banks and uncertain about their future.

“Now I’m going to the branch to find the money. I tried to transfer money yesterday and it didn’t work. You might be really stuck but do you know a moment when you’re not sure? This is one. It’s a moment,” one startup founder told the BBC.

Another founder of a healthcare startup said:

He successfully transferred money to another account 40 minutes before the deadline. “It was pending. And this morning it was there. But I know someone else who did the same thing a few minutes after me and it hasn’t been forwarded.”

“It was a crazy situation,” he said.

The collapse came after SVB said it was looking to raise US$2.25 billion to cover losses from the sale of assets, mainly US Treasuries, that were hit by rising interest rates.

The news caused investors and customers to flee the bank. The stock plunged more than 60% to its biggest one-day drop on record on Thursday, falling further in after-hours selling before trading was halted.

Fears that other banks might face similar problems fueled a sell-off in bank stocks around the world in the early hours of Thursday and Friday local time.

U.S. Treasury Secretary Janet Yellen said in a speech in Washington on Friday that she was monitoring “very closely” “recent developments” such as Silicon Valley Bank.

The SVB did not respond to requests for comment.

A key lender to early-stage businesses, the company is a banking partner to nearly half of US venture-backed technology and healthcare companies that went public last year.

Founded in 1983 as a California bank, the company has expanded rapidly over the past decade. Today, he employs more than 8,500 people worldwide, most of which are located in the United States.

We’ve been trying to assure our customers of that stability over the last few days.

It said on Friday that its UK subsidiary was independent, and said another balance sheet was “isolated from its parent and other subsidiaries”.

Erin Platts, Head of EMEA at the company, said:

The SVB collapse not only hit the tech industry hard, but also raised concerns about the broader risks facing banks.

Central banks around the world, including the US Federal Reserve and the Bank of England, raised borrowing costs significantly last year in an attempt to keep inflation in check.

However, when interest rates rise, the value of existing bond portfolios typically declines.

These declines mean many banks could incur significant losses, but unless other pressures force companies to sell their holdings, changes in value usually don’t matter.

Shares of some major US banks rebounded on Friday, while some small businesses continued to sell.

CFRA equity research analyst Alexander Yokum said single-industry banks were seen as vulnerable to rapid withdrawals, like those that hit the SVB. .

“Silicon Valley Bank wouldn’t have suffered losses if it hadn’t had a shortage of cash to give back to customers,” he said. “The problem was that people wanted the money, but they didn’t have it. They invested money, and those investments were declining.”

“I know there are a lot of fears, but it’s definitely company specific,” he said.

– BBC