US regulators have taken control over the Silicon Valley Bank (SVB) after it was shut down, marking the largest retail bank failure since the 2008 financial crisis.
The Federal Deposit Insurance Corporation (FDIC) on Friday announced that it has taken control of the customer deposits of the lender which are roughly around $175 billion. The regulator typically protects deposits of up to $250,000.
The bank primarily served technology workers and venture capital-backed companies, including some of the industry’s best-known brands.
The move came as the SVB was scrambling to raise money to plug a loss from the sale of assets affected by the Federal Reserve’s interest rate hikes.
The quick jump in interest rates meant that securities they had bought were selling for significantly less.
This sparked a rush of customer withdrawals amidst fears about the state of the banking sector.
The US regulator said they acted to “protect insured depositors” and that the bank offices would reopen and clients with insured deposits would have access to funds “no later than Monday morning”. It added that money raised from selling the bank’s assets would go to uninsured depositors.
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Meanwhile, the chief executive officer of Silicon Valley Bank, Greg Becker, in a video message to the employees acknowledged the “incredibly difficult” 48 hours leading up to its collapse on Friday.
“It’s with an incredibly heavy heart that I’m here to deliver this message,” he said in the video seen by Reuters.
The CEO said that he is cooperating with banking regulators to find a partner for the bank, but added that there is “no guarantee” that a deal will be struck.
According to the bank’s website, nearly half of the US technology and healthcare companies that went public last year after getting early funding from venture capital firms were Silicon Valley Bank customers.
It also boasted of its connections to leading tech companies such as Shopify, ZipRecruiter and one of the top venture capital firms, Andreesson Horowitz.
Markets collapse
The collapse of SVB hooked the global markets on Friday as banking shares across US, EU and UK were in red.
In the United States, First Republic Bank was among the hard-hit banks whose shares slumped 14.8 per cent, and Comerica, which slipped five per cent.
Larger banks like JPMorgan Chase and Bank of America had a mixed performance on Friday.
In London, shares in banking giant HSBC dropped 4.7 per cent, while Standard Chartered fell 4.4 per cent, Barclays 4.1 per cent and Lloyds 3.5 per cent, reports AFP news agency.
In the eurozone, Deutsche Bank tanked 10 per cent at one stage and closed down 7.4 per cent, while French lender Societe Generale slumped 4.5 per cent.
Asian stocks posted steep losses too.
(With inputs from agencies)