The US Federal Deposit Insurance Corporation has seized the assets of Silicon Valley Bank, marking the largest bank failure in the country since Washington Mutual during the height of the 2008 financial crisis.
The bank failed after depositors – mostly technology workers and venture capital-backed companies – began withdrawing their money creating a run on the bank.
Silicon Valley was heavily exposed to the tech industry and there is little chance of contagion in the banking sector as there was in the months leading up to the recession more than a decade ago.
Major banks have sufficient capital to avoid a similar situation.
The FDIC ordered the closure of Silicon Valley Bank and immediately took position of all deposits at the bank on Friday.
The bank had $US209 billion ($316 billion) in assets and $US175.4 billion in deposits as the time of failure, the FDIC said in a statement.
It was unclear how much of deposits was above the $US250,000 insurance limit at the moment.
Notably, the FDIC did not announce a buyer of Silicon Valley’s assets, which is typically when there is an orderly wind down of a bank.
The FDIC also seized the bank’s assets in the middle of the business day, a sign of how dire the situation had become.
The financial health of Silicon Valley Bank was increasingly in question this week after the bank announced plans to raise up to $US1.75 billion in order to strengthen its capital position amid concerns about higher interest rates and the economy.
Shares of SVB Financial Group, the parent company of Silicon Valley Bank, had plummeted about 66 per cent before trading was halted before the opening bell on the Nasdaq.
CNBC reported that attempts to raise capital failed and the bank was now looking to sell itself.
Silicon Valley bank is the 16th largest bank in the United States, holding $US210 billion in assets.
It acts as a major financial conduit for venture capital-backed companies, which have been hit hard in the past 18 months as the US central bank has raised interest rates and made riskier tech assets less attractive to investors.
Venture capital-backed companies were being reportedly advised to pull at least two months’ worth of “burn” cash out of Silicon Valley Bank to cover their expenses.
VC-backed companies are usually not profitable and how quickly they use the cash they need to run their businesses – their so-called “burn rate” – is a typically important metric for investors.
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