Updated: Jun 8
- Introduction of SVB, services & clients
- A brief overview of SVB
- Why SVB failed
- Storyline summary
- Stock price action
- What is FDIC
INTRODUCTION OF SILICON VALLEY BANK
Silicon Valley Bank's 40 Year reign as tech World preferred lender halted as the feds shut down the firm as it was facing liquidity issues. Established in the year 1983 in Santa Clara, the firm offered banking services and took deposits for Silicon Valley Startups, Venture Capital firms and tech giants. SVB played a major role in the supporting recent tech startup valuations boom.
16th Largest bank in the US prior to falling into FDIC Receivership.
Offers financial and “SVB offers financial and banking services to help, as you capitalize on business opportunities, raise capital, protect equity, manage cash flows and access global markets,” a message on the bank’s website says.
SVB had 0.3 Trillion USD in assets as of 31 December 2022. SVB's catastrophe is the second-largest banking failure in history trailing Washington Mutual Inc and it is the biggest of its kind since the 2008 financial meltdown.
The Bank began to crumble when tech workers and VC-backed companies started to withdraw their deposited money, causing a bank run.
WHY WAS SVB FORCED INTO CLOSURE
This was a proactive move in order to protect its depositors. FDIC took control of all deposits. The FDIC did not disclose the number of deposits that were above 250,000$.
FDIC did not announce the acquirer of SVB's assets despite it being the follow-up process in the event of winding up.
There were some early signs exposing the bank's financial health. It was evident when SVB
announced to raise of 1.8 Billion USD in capital position amidst a hike in the interest rate and the economic condition. The Parent group's stock price plummeted by 70% before the trading was halted on the opening bell of NASDAQ.
The bank had $209bn in assets and $175.4bn in deposits at the time of failure, the FDIC said in a statement. How many of the deposits were above the $250,000 insurance limit was unclear.
8 March 2023: Information regarding the bank'sudden attempt to raise capital got exposed and caused the SVB's stock price to plummet by nearly 70%.
9 March 2023: Tech firms & Depositors got spooked and caused a bank run. The aftermath was that the stock price crashed further by 20%.
10 March 2023: NASDAQ halted trading and FDIC intervened.
WHAT IS FDIC
Federal Deposit Insurance Corporation is an American government corporation providing deposit insurance to US savings and commercial bank depositors. The FDIC was established by the Banking Act of 1933. Such protection was enacted to restore the trust of the US banking system in the minds of Americans. As more than 30% of banks collapsed in the previous years prior to FDIC's creation. Bank runs were the most common issue that caused the banks to collapse.
FDIC guarantees a prompt return of insured deposits to FDIC-insured bank customers in the event of banking failure.
FDIC Receivership: A bank's deposits will be assumed by another healthy bank/FDIC will pay depositors up to the insured limit.