Silicon Valley Bank seized by FDIC, closes Greater Boston branches
The Federal Deposit Insurance Corporation seized the assets of Silicon Valley Bank on Friday, marking the largest bank failure since Washington Mutual during the height of the 2008 financial crisis.
The bank failed after depositors — mostly technology workers and venture capital-backed companies — began withdrawing their money creating a run on the bank.
The bank listed several Greater Boston locations on its website, including Silicon Valley Bank branches in Boston and Newton, and former Boston Private Financial Services locations in Boston, Beverly, Cambridge and Wellesley. CBS News Boston went to the Wellesley location and were greeted by a paper sign saying the branch was closed until further notice.
Branches should reopen by Monday, according to an FDIC press release.
Silicon Valley was heavily exposed to tech industry and there is little chance of contagion in the banking sector as there was in the months leading up to the Great Recession more than a decade ago. Major banks have sufficient capital to avoid a similar situation.
The FDIC ordered the closure of Silicon Valley Bank and immediately took position of all deposits at the bank Friday. The bank had $209 billion in assets and $175.4 billion in deposits as the time of failure, the FDIC said in a statement. It was unclear how much of deposits was above the $250,000 insurance limit at the moment.
Notably, the FDIC did not announce a buyer of Silicon Valley's assets, which is typically done when there's an orderly wind down of a bank. The FDIC also seized the bank's assets in the middle of the business day, a sign of how dire the situation had become.
The financial health of Silicon Valley Bank was increasingly in question this week after the bank announced plans to raise up to $1.75 billion in order to strengthen its capital position amid concerns about higher interest rates and the economy. Shares of SVB Financial Group, the parent company of Silicon Valley Bank, had plummeted nearly 70% before trading was halted before the opening bell on the Nasdaq.
CNBC reported that attempts to raise capital failed and the bank was now looking to sell itself.
Silicon Valley bank is not a small bank; it’s the 16th largest bank in the country, holding $210 billion in assets. It acts as a major financial conduit for venture capital-backed companies, which have been hit hard in the past 18 months as the Federal Reserve has raised interest rates and made riskier tech assets less attractive to investors.
Venture capital-backed companies were being reportedly advised to pull at least two months' worth of “burn” cash out of Silicon Valley Bank to cover their expenses. Typically VC-backed companies are not profitable and how quickly they use the cash they need to run their businesses — their so-called “burn rate” — is a typically important metric for investors.
Diversified banks like Bank of America and JPMorgan pulled out of an early slump due to data released Friday by the Labor Department, but regional banks, particularly those with heavy exposure to the tech industry, were in decline.
Yet it has been a bruising week. Shares of major banks are down this week between 7% and 12%.
With additional reporting by the WBUR newsroom