On Friday, the California banking industry regulators announced their decision to close down Silicon Valley Bank, also known as SVP Financial Group.
The swift action taken by the regulators has left many industry experts stunned, as this is considered the biggest bank failure since the 2008 financial crisis that caused the banking sector to shed billions in market capitalization.
SVB Under Receivership By FDIC
The California regulator called in the Federal Deposit Insurance Corporation (FDIC) as a receiver to dispose of the failed bank’s assets. This move is common in the US banking industry, where the FDIC protects depositors’ interests and manages the liquidation of a failed bank’s assets.
SVB is the first FDIC-certified financial institution to fail in 2023. However, the good news for depositors of Silicon Valley Bank is that they will have complete access to their deposits. In addition, according to the receiver’s statement, the bank’s main office and branch in Silicon Valley will reopen on March 13th, relieving many worried about their inaccessible money.
In addition to depositors, many employees of tech startups and companies in Silicon Valley had their paychecks with the bank. As a result, it is causing concern for many, as they are still determining if they can access their funds.
For example, Dean Nelson, CEO at Cato Digital, was part of a crowd gathering at the SVB headquarters in Santa Clara. He worries about the bank’s ability to pay employees and cover expenses.
Dean Nelson emphasized that access to cash is a big headwind for many companies in Silicon Valley, and cash flow is critical. Many startups and companies rely on quick and efficient access to cash to keep their operations running smoothly.
The Ripple Effect of Silicon Valley Bank’s Failure
The impact of the Silicon Valley Bank failure is not just limited to the affected bank, as it has caused a ripple effect in the banking industry. According to Reuters, banks in the US have lost a combined $100 billion in stock, while their counterparts in the Eurozone have lost a combined $50 billion.
US Treasury Secretary Janet Yellen has expressed full confidence in responding to this dangerous situation. The White House has also backed this statement, saying they have faith and full confidence in their regulators.
In addition, Cecilia Rouse, the Chair of the Council of Economic Advisers, has also provided reassurance by stating that the banking system is stronger than the pitfalls of 2008, and the situation will be resolved.
The FDIC has announced that it will sell Silicon Valley Bank’s assets, and uninsured depositors of the bank will be paid through future dividends.