RNS: Silicon Valley Bank (SVB) of the US failed on Friday, driving investors and depositors into a panic. The Federal Deposit Insurance Corp. (FDIC) took over roughly $175 billion in client deposits.
SVB is well-known for lending money to the most successful technology companies, and its failure is the largest bank failure in US history since 2008. The closure of SVB also sank global markets today.
SVB was shut down by the California Department of Financial Protection and Innovation on Friday, less than two days after it urged customers not to withdraw their funds due to cash shortages. The regulator designated the FDIC receiver.
According to the media reports, the National Bank of Santa Clara was established by the FDIC to take over the bankrupt bank’s deposits and other assets. In a press release, the agency assured the public that all services would be restored by Monday and that all previously written cheques would be honoured by the new bank.
Meanwhile, Israeli Prime Minister Benjamin Netanyahu said that the implosion of SVB has triggered a severe crisis in the technology sector. “I am keeping a close eye on the crisis in the high-tech industry caused by the demise of the second-largest bank in US history,” he added.
NY Times reported that, around a year ago, Silicon Valley Bank bought a large number of bonds using the money it had received from successful entrepreneurs. Silicon Valley Bank, like most others, held onto a fraction of its customers’ savings and invested the remainder for profit.
Before the Federal Reserve started hiking interest rates last year to curb inflation, it was effective. Concurrently, many of the bank’s customers began withdrawing their funds as startup funding dried up (following the Covid epidemic), reported NY Times and other US media.
Some of Silicon Valley Bank’s investments had to be sold at a time when their value was falling in order to meet those demands. The bank revealed its unexpected loss of over $2 billion on Wednesday, it reported.
