The bank, which was recognized for catering to startups and venture capital firms, was closed down by both the FDIC and California regulators.
Shortly after reports surfaced that Silicon Valley Bank was exploring a potential sale due to insufficient funding, state and federal banking regulators shut down the institution. The Federal Deposit Insurance Corporation (FDIC) released a statement noting that "All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023."
Silicon Valley Bank plays a significant role in supporting venture capital firms and startups. However, changes in the economy, including a decrease in venture capital funding and increased spending by VC-funded firms, caused the bank's deposits to decline at a quicker rate than expected.
Following Silicon Valley Bank's announcement that it had sold $21 billion in securities at a $1.8 billion loss, as well as a plan to sell $2.25 billion in new shares, many of its remaining customers rapidly withdrew their funds and transferred them elsewhere.
While Silicon Valley Bank sought a sale, CNBC reporter David Faber reported that the rapid outflow of deposits made any arrangement more challenging. A deal arranged by Goldman Sachs bankers to sell shares at $95 per share fell apart as the bank's stock price continued to plummet and customers withdrew more of their funds.
According to a recent 10-K filing, over 90% of the bank's deposits were uninsured. The FDIC noted that "At the time of closing, the amount of deposits in excess of the insurance limits was undetermined." Some customers who attempted to withdraw funds on Thursday experienced difficulty making transfers, raising concerns about the impact on tech and biotech startups with funds still deposited in the bank.
To address the situation, the FDIC established a new entity called the Deposit Insurance National Bank of Santa Clara (DINB) and transferred all insured deposits there. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds.
These developments come only two days after Silvergate Bank, which was friendly to the crypto industry, announced its closure, and the stocks of several other banks decreased significantly.