Silicon Valley Bank shuttered by US bank regulators amid investor frenzy
Silicon Valley Bank (SVB), favored in the tech industry and known for backing cutting-edge start-ups, was shut down and taken over by federal regulators, causing panic among investors and customers worldwide. Now, the bank's CEO is reported to have sold millions in stocks two weeks before the collapse.
As SVB pre-market shares plummeted more than 60% Friday morning, California financial regulators moved to takeover the commercial financial institution, shutting down SVB’s main office and all branches.
The majority of SBV clients are from the technology sector, with an emphasis on early stage start-ups, venture funding, and corporate banking.
The financial scandal heats up even more, as reports that the bank's CEO – formally removed from his position on Friday – sold millions of dollars worth of personal stock in the days leading up to the collapse.
Documents show that CEO of parent company SVB Financial, Greg Becker, sold nearly $3.6 million dollars worth of stock on February 27, reported Forbes.
And just 24 hours earlier, Becker was personally calling clients to assure them their money with the bank was safe, according to Reuters.
SVB, the 16th largest bank in America, had 17 branches in California and Massachusetts, as well as a lone branch in New York City.
The collapse represents the largest bank failure since the US stock market crash of 2008.
A who’s who of major tech industry firms, such as Snap, parent company of Snapchat, and streaming device maker Roku have had financial relationships with the bank.
Roku announced Friday that 26% of its cash and cash equivalents ($487 million US) were held in uninsured deposits with SVB, according to Reuters.
“At this time, the Company does not know to what extent the Company will be able to recover its cash on deposit at SVB,” Roku stated in a regulatory filing.
The CEO of the Silicon Valley Bank in the UK also went public trying to assure investors Friday that SVB UK is “a separate entity” and will not be affected by the US shutdown. Still, late Friday, some UK regulatory agencies disagreed.
“We appreciate that this is a concerning time for our clients so we are working tirelessly to support them and give more context,” Erin Platts, CEO and head of SVB UK said in a statement.
The news of SVB’s collapse quickly spread among banking customers and investors, sparking a massive bank run at branches across the nation.
In the NYC branch, the NYPD had to be called in by staff to remove agitated customers, who were refusing to vacate the branch without their money, reported the NYPost.
CA regulators quickly appointed the US banking protection and insurance agency, Federal Deposit Insurance Corporation (FDIC) as the banks receiver to handle liquidating assets and returning funds to insured depositors, according to a statement by the FDIC.
The Silicon Valley Bank was a member of the FDIC which insures eligible account holders up to $250,000 US for principal and interest.
To protect insured depositors, the FDIC said it immediately transferred all the SMB insured funds into a newly created bank – the Deposit Insurance National Bank of Santa Clara (DINB).
“All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023,” when the DINB reopens, no later than Monday, March 13, the FDIC stated.
Over $80 billion in value from bank shares were lost this week due to the feds raising interest rates, causing investors to pull more cash out of their SVB accounts.
The bank tried to make up for the cash deficit by selling off millions in treasury bonds and stocks earlier this week, which ended up at a loss.
SVB put itself up for sale Friday, in its last ditch effort to raise capital before the takeover to no avail.
For now, uninsured depositors will get an advance dividend and a “receivership certificate for the remaining amount of uninsured funds,” stated the FDIC. said.
As assets are sold off, “future dividend payments may be made to uninsured depositors,” according to the agency.
The SVB website advertises that 44% of U.S. venture-backed technology and healthcare IPOs YTD bank with SVB.
Ironically, SMB was named one of the top US banks by Forbes in 2022, according to the SVB website.
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