Silicon Valley Bank, a lender to some of the biggest names in technology, failed on Friday, becoming the largest bank failure since the 2008 financial crisis. The Federal Deposit Insurance Corporation now has control of nearly $175 billion in customer deposits. So far, here’s what we know about this developing story.
The bank is taken over by regulators
Silicon Valley Bank was closed down by the California Department of Financial Protection and Innovation on Friday, less than two days after the bank tried to persuade clients not to withdraw their funds due to concerns that it was running low on available cash. The Federal Deposit Insurance Corporation was appointed as receiver by the regulator.
The FDIC created a new bank, the National Bank of Santa Clara, to hold the deposits and other assets of the failed one. The agency said in a news release that the new entity would be operating by Monday morning and that checks issued by the old bank would continue to clear.
Higher interest rates caught the bank off guard
Silicon Valley Bank, flush with cash from high-flying startups, purchased massive amounts of bonds more than a year ago. Silicon Valley Bank, like other banks, kept a portion of the deposits on hand and invested the remainder in the hope of earning a profit.
That had worked well until the Federal Reserve began raising interest rates last year to cool inflation. At the same time, startup funding started to dry up, putting pressure on many the bank’s clients — who then began to withdraw their money. To pay those requests, Silicon Valley Bank was forced to sell off some of its investments at a time when their value had declined. In its surprise disclosure on Wednesday, the bank said it had lost nearly $2 billion.