The California Department of Financial Protection and Innovation has taken possession of Silicon Valley Bank and appointed the FDIC as receiver, citing “inadequate liquidity and insolvency.”
This decision followed a sharp decline in SVB’s share price, which dropped over 60% after the bank announced plans to raise $1.75 billion through a share sale to stabilize its finances. Reports indicate that this capital raise quickly fell through, prompting SVB to enter discussions about a potential sale. However, the considerable outflows of deposits complicated the evaluation of SVB’s situation, as large financial institutions explored acquisition options.
As of December 31, SVB had total assets amounting to approximately $209 billion and total deposits of around $175.4 billion, all of which are federally insured by the FDIC, subject to applicable limits. In the UK, Silicon Valley Bank has sought to reassure clients by emphasizing its status as an independent and regulated entity with a separate balance sheet.
This news emerges in a context of rising interest rates and a slowdown in venture capital funding for startups. While banks typically maintain substantial bond portfolios, SVB’s forced asset liquidation has negatively impacted its profitability.
Initially, SVB’s deposits grew as the bank attracted cash from companies heavily funded by venture capital. However, instead of maintaining liquidity, SVB invested these deposits in securities such as U.S. Treasuries, which, despite being considered safe, have depreciated in value due to the Federal Reserve’s rate hikes.
Reports also surfaced that during a call, SVB CEO Greg Becker urged leading venture capitalists to “stay calm,” asserting that the bank had “ample liquidity to support our clients,” with the exception being the potential impact of widespread panic regarding SVB’s stability.
In 2022, Silicon Valley Bank partnered with numerous U.S. publicly traded technology and healthcare companies, prompting many to advise startups on Twitter to withdraw their funds from the bank. Bill Ackman, CEO of the Pershing Square Foundation, expressed concerns over SVB’s failure, noting its crucial role in providing loans and operating cash to VC-backed firms. He suggested that if private capital fails to offer a solution, a government intervention should be considered, emphasizing that any bailout should prioritize the protection of depositors over shareholders or management.
In contrast, venture investor Mark Suster advised that more individuals in the VC community should publicly affirm support for SVB to alleviate panic. He expressed confidence in Becker’s claim of the bank’s solvency and adherence to banking ratios, while cautioning that a mass panic could jeopardize not only startups and VCs but also SVB itself. He highlighted the seriousness of the situation, urging the community to respond with caution rather than levity.