The California Department of Financial Protection and Innovation says it has taken possession of Silicon Valley Bank and appointed the FDIC as receiver, citing "inadequate liquidity and insolvency".
The decison came shortly after trading in SVB was halted after the lender saw shares fall by more than 60% on news that it was planning a $1.75 billion share sale to shore up finances.
According to reports, that capital raise plan quickly failed and by Friday SVB had begun talks to sell itself. Large financial institutions explored a takeover, according to CNBC, but the deposit outflows hitting SVB made an assessment of SVB's situation difficult.
SVB had total assets of approximately $209 billion and total deposits of approximately $175.4 billion as of 31 December. Its deposits are federally insured by the FDIC subject to applicable limits.
Meanwhile, the Silicon Valley Bank UK has moved to reassure clients that it is a standalone independent and regulated entity with a separate balance sheet.
The news comes amid rising interest rates and startups experiencing a VC funding slowdown. While it is common for banks to maintain large portfolios of bonds, because SVB was forced to offload, this has had an impact on their profits.
Further, although SVB’s deposits increased as the bank initially took cash from companies with a high level of VC funding, Silicon Valley Bank put these deposits into securities like US Treasuries. These are considered safe but due to the Federal Reserve increasing rates, they are now worth less.
Many news publications have also reported that on a call, Silicon Valley Bank CEO Greg Becker told top venture capitalists in Silicon Valley to “stay calm” and that the bank has “ample liquidity to support our clients with one exception: If everyone is telling each other SVB is in trouble, that would be a challenge.”
Silicon Valley Bank was a partner for several US VC backed technology and healthcare companies listed on stock markets in 2022, and many took to Twitter to advise startups to withdraw funds from the bank.
Bill Ackman, CEO of the Pershing Square Foundation, tweeted: “The failure of @SVB_Financial could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash. If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered.”
He continued to say that while the government could “guarantee deposits in exchange for a dilutive warrant issuance and other covenants and protections,” while this could allow SVB to “restore the franchise and raise new private capital,” […] “a bailout should be designed to protect @SVB_Financial depositors, not equity holders or management. We should not reward poor risk management or protect shareholders from risks they knowingly assumed.”
However, venture investor Mark Suster also took to Twitter to say that more “in the VC community need to speak out publicly to quell the panic about @SVB_Financial ... I believe their CEO when he says they are solvent and not in violation of any banking ratios & goal was to raise & strengthen balance sheet.”
Suster continued: “I believe the biggest risk to startups AND VCs (and to SVB) would be a mass panic. Classic "runs on the bank" hurt our entire system. People are making public jokes about this. It's not a joke, this is serious stuff. Please treat it as such [.]"