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US regulators have shut down Silicon Valley Bank (SVB) and taken control of its customer deposits in the largest failure of an American bank since 2008.

The moves came as the firm, a key tech lender, was scrambling to raise money to plug a loss from the sale of assets affected by higher interest rates, BBC reported.

Its troubles prompted a rush of customer withdrawals and sparked fears about the state of the banking sector.

Officials said they acted to "protect insured depositors".

SVB faced "inadequate liquidity and insolvency", banking regulators in California, where the firm has its headquarters, said as they announced the takeover on Friday.

The Federal Deposit Insurance Corporation (FDIC), which typically protects deposits up to $250,000, said it had taken charge of the roughly $175 billion in deposits held at the bank, the 16th largest in the US, the BBC reported.

Bank offices would reopen and clients with insured deposits would have access to funds "no later than Monday morning", it said, adding that money raised from selling the bank's assets would go to uninsured depositors.

With many of the firm's customers in that position, the situation has left many companies with money tied up at the bank worried about their future.

The collapse came after SVB said it was trying to raise $2.25 billion to plug a loss caused by the sale of assets, mainly US government bonds, which had been affected by higher interest rates.

The news caused investors and customers to flee the bank. Shares saw their biggest one-day drop on record on Thursday, plunging more than 60 per cent and fell further in after-hours sales before trading was halted, the BBC reported.

Concerns that other banks could face similar problems led to widespread selling of bank shares globally on Thursday and early Friday.

Speaking in Washington on Friday, Treasury Secretary Janet Yellen said she was monitoring "recent developments" at SVB and others "very carefully".

She later met top banking regulators, where the Treasury Department said she expressed "full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient".