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Silicon Valley Bank Collapses After a Capital Crisis

By Kevin Zhang

Silicon Valley Bank collapsed on Friday morning after a 48-hour period in which a bank run and capital crisis led to the second-largest failure of a financial institution in American history. 

California regulators closed down the technology-focused lender and put it under the control of the US Federal Deposit Insurance Corporation. The FDIC is acting as a receiver, meaning it will undergo liquidation of the bank’s assets in order to pay back the bank’s customers, including depositors and creditors. 

The FDIC, an independent government agency that insures deposits and oversees financial institutions, said that all insured deposits will be able to withdraw their money by no later than Monday morning. It also said that it would pay uninsured depositors an “advance dividend within the next week.”

The capital crisis began on Wednesday, when SVB announced that it had sold a large holding of securities at a loss and that it would sell $2.25 billion in new shares in order to clean up its balance sheet. The announcement triggered a panic among key venture capital firms, who reportedly advised companies to withdraw their money from the bank. 

The company’s stock plummeted on Thursday, dragging other banks with it. By Friday morning, SVB’s shares were halted and it had abandoned efforts of finding a buyer. Several other bank stocks were temporarily halted Friday, including Signature Bank, PacWest Bancorp, and First Republic. 

The FDIC takeover of the bank occurred mid-morning, which was noteworthy as it usually waits until the end of trading to intervene. 

SVB’s collapse stems partly from the Federal Reserve’s aggressive increases in interest rate over the past year. 

When interest rates were low, banks bought many treasuries, but after interest rate hikes, the value of those treasuries dipped, and many banks were now holding them at a loss, leaving them with substantial capital losses.

About Kevin Zhang

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