IGI Logo

While relatively unknown outside of the Silicon Valley, the Silicon Valley Bank (SVB) was among the top 20 American commercial banks, with $209 billion in total assets at the end of last year, according to the Federal Deposit Insurance Corporation (FDIC).

But now, it is the largest lender to fail since Washington Mutual collapsed in 2008, reports CNN.

SVB partnered with nearly half of all venture backed tech and health care companies in the US, many of which pulled deposits out of the bank.

Its sudden fall mirrored other risky bets that have been exposed in the past year's market turmoil.

Crypto-focused lender Silvergate said on Wednesday it is winding down operations and will liquidate the bank after being financially pummeled by turmoil in digital assets.

Signature Bank, another lender, was hit hard by the bank selloff, with shares sinking 30 per cent before being halted for volatility Friday, CNN reported.

"SVB's institutional challenges reflect a larger and more widespread systemic issue: The banking industry is sitting on a ton of low-yielding assets that, thanks to the last year of rate increases, are now far underwater -- and sinking," wrote Konrad Alt, co-founder of Klaros Group.

Alt estimated that rate increases have "effectively wiped out approximately 28% of all the capital in the banking industry as of the end of 2022".

Despite initial panic on Wall Street over the run on SVB, which caused its shares to crater, analysts said the bank's collapse is unlikely to set off the kind of domino effect that gripped the banking industry during the financial crisis, CNN reported.

But smaller banks that are disproportionately tied to cash-strapped industries like tech and crypto may be in for a rough ride, according to Ed Moya, senior market analyst at Oanda.

"Everyone on Wall Street knew that the Fed's rate-hiking campaign would eventually break something, and right now that is taking down small banks," Moya said.

The company's stock cratered on Thursday, dragging other banks down with it.

By Friday morning, SVB's shares were halted and it had abandoned efforts to quickly raise capital or find a buyer.

Several other bank stocks were temporarily halted Friday, including First Republic, PacWest Bancorp, and Signature Bank, CNN reported.

The mid-morning timing of the FDIC's takeover was noteworthy, as the agency typically waits until the market has closed to intervene.

"SVB's condition deteriorated so quickly that it couldn't last just five more hours," wrote Better Markets CEO Dennis M. Kelleher.

"That's because its depositors were withdrawing their money so fast that the bank was insolvent, and an intraday closure was unavoidable due to a classic bank run."