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US regional banks hope for profit revival as pain from SVB fallout eases

What we don’t know is when a sale will happen, but the FDIC’s preferred route is to arrange the sale of insured deposits and other assets to a healthy bank, so it’s still very possible. As the bank grew to be the 16th largest in America, SVB invested their funds in long-term bonds when rates were near zero. Such gaseous proclamations are false, intended to exploit this collapse for personal attention. The over-extrapolation of a set of interim emergency measures fosters more confusion and angst when sentiment is already eroding. Federal officials are taking measures to prevent a “contagion” from spreading to other banks.

Bank analysts at Morgan Stanley said in a note late last week that SVB’s troubles “are highly idiosyncratic and should not be viewed as a read-across to other regional banks.” Among its clients were tech and tech-adjacent companies like Roku, Roblox and Vox Media. (It turns out that this concentration in the tech sector was key to its demise.) But it remained little known outside of tech circles — until this past week. Shares of small, regional lenders have been hammered; the bond market has swung wildly; and now, the pressure is on the Federal Reserve to dial back its interest rate increases even as inflation persists.

Earlier last week, Silvergate, a California-based bank that caters to the cryptocurrency industry, announced plans to unwind its operations. On Thursday alone, clients raced to collectively withdraw an attempted $42 billion in deposits, and SVB’s share value dropped by more than 60%. Then, on Sunday, regulators grew concerned about the financial health of New York’s Signature Bank, largely because of its big exposure to the volatile crypto market. “The precipitous deposit withdrawal has caused the Bank to be incapable of paying its obligations as they come due,” the California financial regulator stated. “This was a hysteria-induced bank run caused by VCs,” Ryan Falvey, a fintech investor at Restive Ventures, told CNBC.

  1. SVB catered to venture capital and private equity — as that sector has done well over the past decade, so has SVB.
  2. This happened during the financial crisis, including when JPMorgan Chase absorbed Washington Mutual in 2008.
  3. A high-profile bank failure like this one could reduce consumer confidence in the banking system.
  4. On Monday, the Wall Street Journal reported that FDIC officials told senators they planned to try to auction the failed bank again.

That appears to have morphed into a self-fulfilling prophecy, with tech titans including Peter Thiel reportedly warning startup founders to reduce their exposure to SVB. Founded in 1983, the bank grew to become the 16th-largest in the U.S, with $210 billion in assets. Over the years, according to reports, its client list grew to include some of the biggest names in consumer tech like Airbnb, Cisco, Fitbit, Pinterest and Square. Both of these banks were relatively small – with about $200 million in deposits combined.

What happens to Silicon Valley Bank’s customers?

Some of its tech company clients were burning through cash faster than expected in early 2023, Silicon Valley Bank said in its March 8 investor letter. That resulted in lower deposits than forecast, according to the bank. The FDIC said it created a new institution, the Deposit Insurance National Bank of Santa Clara (DINB), and that it had immediately transferred all insured deposits at Silicon Valley Bank to the new bank. All insured depositors will have access to their insured deposits by Monday morning, March 13, the FDIC said in a statement.

Janet Yellen says the federal government won’t bail out Silicon Valley Bank

The S&P 500 lost 4.55% last week, while regional bank stocks fell 16% for their worst week since March 2020. Investors have warned that the failure of government regulators to announce a new plan for restoring SVB’s deposits could lead to cascading issues in other small- and mid-sized banks as well as financial markets. Once the bank opens on Monday, more depositors could pull their money out, making a sale more difficult.

But it ended up being the government, not investors, who came to depositors’ rescue. Wells Fargo analyst Shaw also said other banks were hit by panic selling. “It’s really just a fear that has gripped the market, and is sort of self-perpetuating at this point,” he said. Long-term, analysts say the broader banking sector is still likely to be healthy. And on Sunday, regulators took over Signature Bank, a New York-based institution that expanded into the crypto industry in 2018 and saw $10 billion in withdrawals on Friday after SVB’s troubles began.

Who Were the Main Investors in Silicon Valley Bank?

Investors have less appetite for risk when the money available to them becomes expensive due to the higher rates. This weighed on technology startups – the primary clients of Silicon Valley Bank – because it made their investors more risk-averse. If SVB were able to hold those bonds for a number of years until they mature, then it would receive its capital back. swissquote review However, as economic conditions soured over the last year, with tech companies particularly affected, many of the bank’s customers started drawing on their deposits. If there is no buyer for SVB or a new backstop created by regulators, then the FDIC will be selling off SVB’s assets in order to raise cash that would be used to repay uninsured depositors.

Silicon Valley Bank could yet impact a major part of the U.S. economy in that tech companies could lose a valuable source of financing, noted Bill Ackman, CEO of hedge fund Pershing Square, on Twitter. “The stock reaction today is evident of concerns around the bank’s liquidity,” King said. February retail sales data is also on deck Wednesday morning, along with a homebuilders survey that should give some insight into the health of the housing market. Newly appointed Silicon Valley Bridge Bank CEO Tim Mayopoulos asked customers to return some their funds into the bank.

What Happened to Silicon Valley Bank?

US property losses also sent Tokyo-based Agora bank tumbling 20%, Bloomberg reported. And Deutsche Bank AG in Europe is quadrupling its provisions, or which is money set aside to anticipate future losses, to $123 million. Even New York Bancorp set aside a huge chunk of its $552 million provisions for its commercial real estate portfolio. Other bank stocks fell Thursday as Silicon Valley Bank shares swooned. Banks lost a total of about $100 billion in market value over the last two days, according to Reuters.

People who have uninsured deposits will be paid an advanced dividend and get a little certificate, but that isn’t a guarantee people will get all their money back. Founded in 1983 after a poker game, Silicon Valley Bank was an important engine for the tech industry’s success and the 16th largest bank in the US before its collapse. It’s easy to forget, based on the tech industry’s lionization of nerds, but the actual fuel for startups is money, not brains. Many startup executives whose companies banked with SVB are now also likely facing a payroll crisis, Hargreaves said, because the FDIC is authorized to release only insured deposits of up to $250,000.

The shutdown and takeover of Silicon Valley Bank by regulators on Friday can be traced to the US Federal Reserve raising interest rates and souring the risk appetite of investors. SVB had tens of billions of dollars in agency mortgage-backed securities. Those assets are highly liquid, and could in theory be sold quickly with little loss. Regulatory reforms since the 2008 financial crisis have also made mortgage-backed securities much safer than the ones that contributed to financial stability issues back then. That’s in large part because the tech startup world is tightly plugged into itself, with founders and executives constantly trading information and boasting on Twitter or text chains or Signal chats. One tech company pulling its money out of a bank is a story that quickly cascades to the leaders of other companies, who then tell leaders of other companies.