Silicon Valley Bank was one of the 20 largest US commercial banks and is now under the control of the US Federal Deposit Insurance Corporation after it became unable to reimburse customers who withdrew their deposits. Although experts have allayed fears of a wider contagion, the bank’s collapse could have significant ramifications for the startup and tech sectors.
Here are the key things to know:
The FDIC acted with unusual speed
The FDIC, an independent government agency that insures bank deposits and oversees financial institutions, took over mid-morning Friday; usually it waits for the markets to close. The FDIC acts as a receiver, which generally means that it will liquidate the bank’s assets to reimburse its customers, including depositors and creditors.
He said all insured depositors will have full access to their insured deposits by Monday morning. He said he would pay uninsured depositors an “early dividend over the next week”.
High interest rates led to its demise
The Fed has been aggressively raising interest rates since 2022 to fight runaway inflation. But it has made borrowing for businesses and individuals more expensive. High rates have severely constrained tech companies, depressing the value of tech stocks and making it difficult to raise funds.
Faced with higher interest rates, the loss of IPOs and a funding drought, SVB customers began withdrawing money from the bank.
There’s a lot to lose
US customers held at least $151.5 billion in uninsured deposits at the end of 2022, according to SVB’s latest annual report. Foreign deposits have reached at least $13.9 billion and are also uninsured.
Companies may have gotten a decent amount during the bank run, but there’s still a lot of money at stake if a buyer or a bailout isn’t reached.
Roku held about $487 million of its $1.9 billion in cash at Silicon Valley Bank, or 26% of the company’s total. The streaming company added that most deposits were uninsured. Video game site Roblox and bankrupt cryptocurrency lender BlockFi are also dealing with the fallout.
It’s not yet a banking crisis
Most analysts say the SVB implosion seems company-specific for now.
“The reason [SVB is] struggling is because they are exposed to particular sectors,” said Jonas Goltermann, deputy chief market economist at Capital Economics. Most other banks, he added, are more “diversified”.
There is also less concern about the stability of the banking sector due to the significant regulatory reforms put in place after the 2008 crisis.
Ordinary consumers, on the whole, are unlikely to be affected. But the collapse is a good reminder to know where your money is and not have it all in one place.
“The first bank failure since 2020 is a wake-up call for people to always make sure their money is in an FDIC-insured bank and within FDIC limits and following FDIC rules,” said Matthew Goldberg, an analyst at Bankrate.
Tech companies are scrambling
SVB was a top lender to the startup community, whose founders now worry about getting their money out, doing payroll and covering operating expenses.
“Now that the bank has closed, I just want to know what happens next,” Ashley Tyrner, founder of health food delivery company FarmboxRx, told CNN in an email. “The FDIC covers 250K, but will I get all of my 8 digits back?”
Some get creative. Retailer of children’s toys, clothes and experiences CAMP has urged customers to use code BANKRUN to save 40% on all merchandise (or pay full price – which it says would be appreciated).
Other lenders feel the pain
Lenders somewhat similar to SVB are in an unfortunate situation.
Crypto-focused lender Silvergate said it was winding down operations and liquidating the bank after it was financially hit by the digital asset turmoil.
CNN’s Matt Egan contributed to this report.