Ouch! The bank that funded many Silicon Valley startups has run out of money in the second-largest banking collapse in US history. Failure would do massive damage to the venture capital economy, and is already hurting the banking sector at least in the short term. However, the risk of a 2008-style crash is low.
Silicon Valley Bank to fail on Friday after a massive influx of deposits, putting nearly $175 billion, including money from some of the largest technology companies, under the control of the FDIC (Federal Deposit Insurance Corporation). The bank has been an important source of venture capital financing for technology companies, The New York Times reported.
The Corporation is exploring a potential sale as it halts all stock trading. FDIC will Catch Deposits and assets of the Silicon Valley Bank are in the recently built National Bank of Santa Clara, which is supposed to start operating by Monday. Checks issued by Silicon Valley Bank will still clear.
However, the bank’s insurance policy only covers deposits of less than $250,000. Accounts over this amount will eventually receive certificates that are partially reimbursed for their uninsured funds. Less than three percent of the Silicon Valley bank’s deposits have been insured since its dealings with several big tech companies.
Silicon Valley Bank used its ample capital from mutual funds to invest in bonds produced Reliable returns due to low interest rates. Between 2018 and 2021, the bank’s deposits grew from $49 billion to $189.2 billion. However, last year’s Fed rate hike turned the strategy on its head.
the bank answered Some cautionary measures this week, but the announcement of those moves sparked panic. The Silicon Valley bank sold some securities at a loss, sold $21 billion in investments, borrowed $15 billion, and raised cash through emergency stock sales. The poor reception to these decisions sent the banks into a rush as their share price fell.
The fallout caused Signature Bank and Western Alliance to end Friday, down more than 20 percent. PacWest Bancorp is down more than 35 percent. However, other large banks, such as JPMorgan and Wells Fargo, are doing just fine, ending up slightly higher on Friday. Bank of America and Morgan Stanley suffered slight declines.
The fall of the Silicon Valley bank is the largest US bank failure since the collapse of Washington Mutual in 2008 – the largest in American history – which affected $300 billion in customer deposits.