(Silicon Valley Bank) The Silicon Valley bank, America's best home for tech startups, made headlines within two days of its collapse, leaving customers and investors stranded.
The Silicon Valley bank, which has faced extraordinary deposit withdrawals and a capital crisis, collapsed on Friday morning and was taken over by federal authorities.
The bank's collapse has been described as the largest failure of a US bank since the collapse of Washington Mutual, believed to be the largest savings and loan company in the US, in September 2008, when dozens of people applied for answers about what had been found in the banks. So here's what we know about bank failures and what might happen next:
What is Silicon Valley Bank?
Founded in 1983, Silicon Valley Bank specializes in banking technology startups. It funds nearly half of all venture capital-backed technology and healthcare companies in the United States.
Not many outside Silicon Valley have heard of the bank, despite it being one of the 20 largest commercial banks in the US with total assets of $209 billion at the end of last year, according to CommInsurance.
Why did Silicon Valley bank fail?
It began after the Federal Reserve raised interest rates a year ago to curb inflation. Rising borrowing costs dampened momentum in tech stocks, which are benefiting from a Silicon Valley bank, after a strong move by the Federal Reserve.
High interest rates have also eroded the value of long-term bonds, which have engulfed Silicon Valley and other banks in an era of ultra-low and near-zero interest rates. The average yield for the bank's $21 billion bond portfolio is 1.79%.
At the same time, mutual funds are running dry, forcing startups to withdraw money from banks, threatening bond losses when customers withdraw their deposits.
Banking crisis in Silicon Valley
On Wednesday, the bank said it had sold a large number of securities at a loss and would sell $2.25 billion in new shares to shore up its balance sheet, sparking panic among large venture capitalists, reports said, advising tech startups. Money is withdrawn from the pool. Bank.
The bank's shares began to decline Thursday morning and caused shares of other banks to decline in the afternoon amid investors' concern over a repeat of the 2007-2008 financial crisis.
As of Friday morning, he had stopped trading Silicon Valley shares and abandoned efforts to raise capital quickly or find a buyer. California regulators stepped in, shutting down the bank and putting it into FDIC custody.
Fear of infection spreading to other banks
Despite the initial panic on Wall Street, analysts say the collapse of SVB is unlikely to result in the kind of domino effect that swept through the banking industry during the financial crisis.
“The system is more liquid and well-capitalized than ever before. Troubled banks are too small to pose a real threat to the entire system,” said Mark Zandi, chief economist at Moody's.
According to the FIC, all insured depositors will have full access to their insured deposits no later than Monday morning. Uninsured depositors "will be paid early next week."
What happens after a bank collapse?
Other banks are unlikely to be contagious, said Ed Moya, a senior market analyst at Bank of America, but smaller banks heavily tied to financially distressed industries like tech and cryptocurrency could face tough times.
"Everyone on Wall Street knows that the Fed's campaign to raise interest rates will eventually break something, and now the smaller banks are falling apart," Moya said on Friday.
The FDIC typically sells the assets of failing banks to other banks and uses the proceeds to return funds to uninsured depositors.
As a result, a buyer could still emerge for the Silicon Valley bank to lure it in.
Will Elon Musk buy Silicon Valley Bank?
Billionaire Elon Musk, whose fortune is now around $180 billion, said early yesterday (Saturday) morning that he was "open to the idea" of buying the bank.
“I think Twitter should buy Silicon Valley Bank and turn it into a digital bank,” said Min Liang Tan, co-founder and CEO of Razer, a company that sells computer and game hardware.
"I'm open to the idea," Musk, who bought Twitter for $44 billion in late October, replied, without providing further context.