US regulators have shut down Silicon Valley Bank (SVB) and taken control of its customer deposits in the biggest US bank failure since 2008.
The move came as a leading tech lending firm scrambling to raise funds to cushion losses from the sale of assets hit by higher interest rates.
Its troubles triggered customer withdrawals and raised fears about the health of the banking sector.
The officials said they acted to “protect the insured depositors”.
Silicon Valley Bank faced “inadequate liquidity and bankruptcy,” banking regulators in California, where the firm is headquartered, said as they announced the acquisition.
The Federal Deposit Insurance Corporation (FDIC), which normally protects deposits of up to $250,000, said it had taken charge of nearly $175bn (£145bn) in deposits at the bank, which is the 16th largest in the US. Is.
Bank offices will reopen and customers with insured deposits will have access to funds “no later than Monday morning,” it said, adding that the money raised from selling bank assets will go to uninsured depositors.
investor flight
The situation has left many firms with money tied up in the bank worried about their future, with many of the firm’s clients in that position.
“I am going to the branch to find my money right now. Tried to move it yesterday, didn’t work. You know those moments where you might be really screwed but you’re not sure? It’s one of those moments,” one start-up founder told the BBC.
Another founder of the healthcare start-up said: “Literally three days ago, we just put a million dollars in our bank account … and then this happens.”
He managed to transfer the money to another account 40 minutes before the deadline. “It was pending. And then this morning, it was there. But I know other people who did the same thing after me, and it hasn’t moved.
“It was a crazy situation,” he said.
The collapse came after SVB said it was trying to raise $2.25bn (£1.9bn) to cover losses from the sale of assets, mainly US government bonds, which were hit by higher interest rates .
This news caused investors and customers to flee the bank. Shares saw their biggest one-day decline on record on Thursday, plunging more than 60% and falling further in after-hours selling before trading was halted.
Concerns that other banks could face similar problems led to a widespread sell-off of bank shares globally on Thursday and early Friday.
Speaking in Washington on Friday, US Treasury Secretary Janet Yellen said she was monitoring “recent developments” at Silicon Valley Bank and others “very carefully”.
She later met with top banking regulators, where the Treasury Department said she “expressed full confidence in banking regulators to take appropriate action in response and noted that the banking system remains resilient”.
SVB did not respond to a request for comment.
An important lender to early-stage businesses, the company is the banking partner for nearly half the US venture-backed technology and healthcare companies that listed on stock exchanges last year.
The firm, which began as a California bank in 1983, has expanded rapidly over the past decade. It now employs over 8,500 people globally, although most of its operations are in the US.
But the bank has been under pressure, as higher rates make it harder for start-ups to raise money through private fundraising or share sales, and more customer deposits withdraw, which snowballed this week.
Echoes of the collapse were widespread in Silicon Valley as companies faced questions about what the collapse meant for their finances.
Even businesses with no direct business were affected, such as customers of Rippling, a firm that handles payroll software and that used SVB. It warned that current payments could be delayed and said it was shifting its business to another bank.
SVB’s UK subsidiary said it would be put into insolvency process from Sunday evening.
The Bank of England said Silicon Valley Bank UK would stop making payments or accepting deposits in the interim, and the move would allow individual depositors to withdraw up to £85,000 from the UK’s deposit insurance scheme.
“SVBUK has a limited presence in the UK and no significant functions supporting the financial system,” the BoE said.
As well as being a major blow to the tech industry, the collapse of the SVB raised concerns about the wider risks facing banks, as a rapid rise in interest rates hit bond markets.
Central banks around the world – including the US Federal Reserve and the Bank of England – have sharply increased borrowing costs over the past year as they try to curb inflation.
But as rates rise, the value of existing bond portfolios typically declines.
Those declines mean that many banks are sitting on significant potential losses – although changes in value generally won’t be a problem unless other pressures force firms to sell holdings.
Shares of some major US banks improved on Friday, but the selloff continued to affect smaller firms, halting trading for names like Signature Bank and others.
The tech-heavy Nasdaq ended the day down 1.7%, while the S&P 500 fell 1.4% and the Dow closed down 1%.
Major European and Asian indices also closed with losses, with the FTSE 100 down 1.6%.
Alexander Yocum, equity research analyst at CFRA, said banks specializing in single industries, like the banks affecting SVB, are known to be vulnerable to rapid withdrawals.
“Silicon Valley banks wouldn’t be in trouble if they didn’t have the cash to pay back to their customers,” he said. “The point was people wanted money and they didn’t have it—they invested it and those investments were short.”
“I know there’s a lot of fear, but it’s definitely company-specific,” he said.
“On average that should be fine,” he said, but he added that tech firms will find it even more difficult to raise money. “It’s no good,” he said.
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