How Law Collapsed Silicon Valley Bank, The Second Largest Bank Failure In US History
Pictured: Silicon Valley Bank
Silicon Valley Bank (SVB) - the second largest bank failure in US history and the largest bank failure since 2008. Silicon Valley Bank was used by many US start-ups (especially in tech and healthcare), as well as 60% of US venture capital funds. The majority of these organisations have well in excess of millions deposited at SVB.
As the US Fed (Federal Reserve) raised interest rates, SVB had a $1.8 billion loss on the sale of assets in the fourth quarter of 2022. US Treasury bonds made up large proportions of SVB’s portfolio which was sold at a loss. When this quarterly report was announced, this caused SVB customers to panic and withdraw their money from the bank. Banking regulators, the legal part of the banking equation, shut down SVB as customers raced to withdraw $42 billion in one day - a quarters of Silicon Valley Bank’s total deposits - on Friday 10 March 2023.
See the timeline below as The Corporate Law Journal breaks down the key events which led to this immediate failure and the second larges bank collapse in US history.
Wednesday 8 March 2023:
Silvergate Bank’s parent company, Silvergate Capital (a big investor in cryptocurrency since 2016), announced that it would cease its banking operations.
Thursday 9 March 2023:
Silicon Valley Bank (NASDAQ:SIVB) crashes 60% as it tries to shore up liquidity.
Friday 10 March 2023:
Silicon Valley Bank collapses and is taken over by the banking regulator known as FDIC (Federal Deposit Insurance Corporation) - a United States of America government corporation supplying deposit insurance for depositors in savings banks and commercial banks in America.
However:
FDIC insurance only covers depositors for deposits up to $250,000. But only 2.7% of deposits made by customers are less than $250,000 which means that 97.3% of Silicon Valley Bank customers will not be fully insured for their funds in excess of $250,000 leaving individuals losing money in the regions of multimillions.
Silicon Valley Bank tried to raise money but failed and then they tried to sell themselves to a larger company but they could not do that also. Therefore, the FDIC stepped in and are trying to salvage customer assets - however it is not looking good.
Another big question, is this a contagion? Is this the first domino to fall in a milieu of future bank collapses?
Subscribe to The Corporate Law Journal to stay tuned and find out more.
By Saffron Gilbert-Kaluba