In stunning news of events, Silicon Valley Bank collapsed Friday morning when California regulators closed down the tech lender and put it under the control of the US Federal Deposit Insurance Corporation (FDIC). The FDIC is currently acting as a receiver, which typically means it will liquidate the bank’s assets to pay back its customers, including depositors and creditors.
The news of the bank’s downturn occurred Wednesday when SBV announced it had sold a large batch of securities at a loss and that it would sell $2.25 billion in new shares to shore up its balance sheet. That triggered panic among key venture capital firms to instruct their client companies to withdraw their money from the bank.
The company’s stock took a nosedive on Thursday, dragging other banks down with it. By Friday morning, SBV’s shares were halted and it had abandoned efforts to quickly raise capital or find a buyer. Several other bank stocks were temporarily halted Friday, including First Republic, PacWest Bancorp, and Signature Bank.
The mid-morning timing of the FDIC’s takeover was noteworthy, as the agency typically waits until the market has closed to intervene.
Silicon Valley Bank CEO Greg Becker tried to calm tech investors and entrepreneurs who he conceded are “starting to panic,” as they fear a potential run on the bank, On The Money has learned.
The boss of the 40-year-old financial firm — which saw its stock plummet 60% in afternoon trading on Thursday — gathered key venture capitalists and founders on a Thursday Zoom call to promise the bank is in a strong position with lots of liquidity.
“My ask is to stay calm because that’s what is important,” Becker told listeners on the call. “We have been long-term supporters of you — the last thing we need you to do is panic.”
The rapidly unfolding fallout at Silicon Valley Bank comes at a challenging moment for the tech industry. Rising interest rates have eroded the easy access to capital that helped fuel soaring startup valuations and funded ambitious, money-losing projects. Venture funding in the United States fell 37% in 2022 compared to the year prior, according to data released in January by CBInsights.
At the same time, broader macroeconomic uncertainty and recession fears have prompted some advertisers and consumers to tighten spending, cutting into the industry’s revenue drivers. As a result, the once high-flying tech world has fallen into a steep cost-cutting season marked by mass layoffs and a renewed focus on “efficiency.”
The situation at Silicon Valley Bank may have been worsened by more startups feeling pinched for cash and needing to withdraw funds. Now, the bank’s collapse risks compounding the industry’s cash crunch and broader turbulence.