California-based Silicon Valley Bank (SVB) has collapsed in the second-largest bank failure in US history, following a run on deposits which left the bank unable to raise the necessary capital. The Federal Deposit Insurance Corporation (FDIC) has taken control of the bank via a new entity it has created, the Deposit Insurance National Bank of Santa Clara, and has transferred all of the bank’s deposits to this new bank. The FDIC reports that the new entity will be up and running by Monday, and that checks issued by the old bank will continue to clear.
With $209 billion in assets as of December 31, 2022, SVB is the 16th largest bank in the US, and is by far the largest bank to fail since the financial crisis of 2008, second only to the collapse of Washington Mutual Inc. The collapse of SVB has raised concerns that other banks could face similar problems, as venture capital-backed clients were quick to withdraw their deposits following news of SVB’s troubles.
Founders Fund, a venture capital firm run by Peter Thiel, advised companies to withdraw their money from SVB, which had reported $1.8 billion in losses from a bond firesale. Although SVB’s client list was not concentrated in the cryptocurrency sector, its venture capital-dependent customers were burning through cash at a faster pace due to rising interest rates. Despite attempts to fundraise and find a buyer, the bank was ultimately unsuccessful.
Insured depositors will have access to their money by March 13, while uninsured depositors will be repaid as the FDIC sells off the bank’s assets. The collapse of SVB highlights the ongoing challenges faced by banks that are heavily reliant on venture capital funding, particularly in a volatile economic environment.