Silicon Valley Bank Collapse: FDIC Takes Control After Unexpected Failure
By On Friday, March 10, 2023, the Federal Deposit Insurance Corporation (FDIC) took control of Silicon Valley Bank (SVB) following a sudden and swift collapse, making it the second-largest bank failure in American history.[0] Just two days prior, SVB had signaled that it was facing a cash crunch.[1] Initially, the company attempted to acquire capital by offering shares, then it tried to be acquired by another, however, all these attempts scared away potential investors and eventually, the business failed.[1]
In 1983, Silicon Valley Bank was born out of a poker game, and quickly established itself as the lender of choice for tech startups deemed too risky by more traditional banks. Silicon Valley Bank eventually became the business of choice for almost 50% of U.S. tech startups that were funded by venture capitalists.
Founded in 1983, SVB has its headquarters located in Santa Clara, California, the heart of Silicon Valley.[2] Boasting of its close relationship with tech entrepreneurs, the 16th largest bank in the country proudly referred to itself as the “financial partner of the innovation economy.”[2] At the close of 2022, the bank reported that “nearly half” of all U.S. startups funded by venture capital had employed their services.[2]
On Wednesday, SVB's announcement of a plan to acquire billions in capital to make up for the heavy losses triggered a wave of terror among the tech founders and their investors.[3] The company's stock dropped 60% in Thursday's trading session, followed by a 20% decrease in post-market trading. On Friday, trading of the company's shares was halted at the start of the day.[3] After some time had passed, news circulated that SVB was having difficulty finding buyers in its attempt to be sold, leading the government to take over.[3]
The FDIC said those with insured deposits with SVB, typically up to $250,000, would be able to access their money by no later than Monday morning.[4] Anything exceeding that figure will cause a “receivership certificate.” to be issued.[4] As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.[5]
The event has caused a ripple effect throughout the tech industry.[1] The ironic consequence of many companies and those with money in SVB deciding to take their money out earlier in the week was that it contributed to the bank's downfall.[1]
0. “‘This hit like a ton of bricks': Troubles at Silicon Valley Bank ripple across Boston tech scene” The Boston Globe, 11 Mar. 2023, https://www.bostonglobe.com/2023/03/10/business/troubles-silicon-valley-bank-ripple-across-boston-tech-scene
1. “What is Silicon Valley Bank? The bank’s collapse, explained.” Vox.com, 10 Mar. 2023, https://www.vox.com/technology/23634433/silicon-valley-bank-collapse-silvergate-first-republic-fdic
2. “Most of Silicon Valley Bank's Deposits Were Uninsured” TIME, 10 Mar. 2023, https://time.com/6262009/silicon-valley-bank-deposit-insurance/
3. “Silicon Valley Bank had no official chief risk officer for 8 months while the VC market was spiraling” Fortune, 10 Mar. 2023, https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer
4. “Silicon Valley Bank failure could wipe out ‘a whole generation of startups'” NPR, 11 Mar. 2023, https://www.npr.org/2023/03/11/1162805718/silicon-valley-bank-failure-startups
5. “Takeaways from America's second-largest bank failure” CNN, 11 Mar. 2023, https://www.cnn.com/2023/03/11/business/svb-collapse-roundup-takeaways/index.html
