Two U.S. Banks Collapse in 48 Hours. Which One's Next?
Two U.S. Banks Collapse in 48 Hours. Which One's Next?
Luc Olingamar 10, 2023 1:34 Pm Est
Silvergate served the cryptocurrency industry, while SVB was the bank for Silicon Valley tech startups.
It's a black week for the American financial system: In just 48 hours, the banking sector has been shaken by the collapse of two major banks. Most worrying is that these banks served two so-called growth economic sectors: the tech sector and the cryptocurrency industry.
SVB Financial Group, (SIVB) - Get Free Report the lender to Silicon Valley startups, failed on March 10, falling into the hands of the FDIC. The federal agency has taken control of the banking company, reviving the ghosts of the 2008 financial crisis.
"Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation as receiver," the federal agency said in a news release.
"All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds."
It added that it may pay a dividend to uninsured depositors as it sells the assets of SVB (SIVB) - Get Free Report.
The FDIC is a guarantor for bank depositors.
SVB: The To-Go Bank for Tech Startups
At the end of last year SVB had $209 billion in total assets and $175 billion in total deposits. SVB becomes the second biggest failure of a U.S. bank after Washington Mutual in 2008.
SVB was a central player in the innovation economy. It was the backbone of the tech industry in Silicon Valley. It played an important role in the startup ecosystem by providing specialized financial services, industry expertise, a valuable network, and a strong reputation.
It also offered a range of financial services tailored specifically to the needs of startups, such as venture debt, corporate banking, and asset management. These services are designed to help startups manage their finances, optimize their cash flow, and scale their businesses.
SVB suffered from the rise in interest rates from the Federal Reserve because it hurt the value of its investment assets, especially bonds. As a result, the bank had to resort to a capital raise as many startups withdrew their deposits from the bank since they were burning a lot of cash.
SVB had to sell bonds, primarily U.S. Treasury securities, at a discount to cover these withdrawals. The rise in interest rates has made existing bonds less valuable. In selling these bond positions, SVB had to take a significant loss.
But its attempt to raise $2.25 billion failed.
Crypto Bank Silvergate Collapsed
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