Chinanews.com, March 11th. Silicon Valley Bank, whose story began with a poker game, collapsed on March 10th local time after a run on deposits led to the failure of plans to raise new funds.
How did this "darling of the banking industry" come to be "the second largest bank failure in American history"?
Image source: Screenshot of the Associated Press report
'Incredible' rate of closures
The situation of Silicon Valley Bank this year seemed to be stable. On February 14, the bank also appeared on the list of "2023 Top 100 Banks in America" by Forbes magazine.
However, in fact, the crisis has long been lurking.
Tech stocks, which soared during the pandemic, have been hammered over the past 18 months, with layoffs across the industry.
Silicon Valley Bank's ties to the tech industry quickly became a liability.
Meanwhile, the bank has been hit hard by the Federal Reserve's fight against inflation and a series of aggressive rate hikes.
As the Fed raised its benchmark interest rate, the value of the bonds began to fall.
That's usually not a problem because the downturn simply results in "unrealized losses" that don't count against the capital buffer banks can use in the event of a future downturn.
But when depositors became anxious and started withdrawing money, banks sometimes had to sell those bonds before they matured to cover the flight.
That's exactly what happened to Silicon Valley Bank, which had to sell $21 billion of highly liquid assets to deal with deposit flight and lost $1.8 billion as a result.
The American media described the collapse speed of Silicon Valley Bank as unbelievable.
Shares plunged 60% on March 9 after Silicon Valley Bank announced plans to raise as much as $1.75 billion to bolster its capital position, sending investors scurrying for a retreat and falling further ahead of the Nasdaq open on March 10.
On the morning of the 10th, executives at Silicon Valley Bank were also trying to raise funds and find more investors.
However, trading in the bank's shares was halted ahead of the open on Wall Street amid wild swings in the share price.
Shortly before noon that day, the Federal Deposit Insurance Corporation (FDIC) moved to shut down the bank.
It's worth noting that the FDIC didn't wait until the close of business for the day to take over the banks.
The Wall Street Journal reported that the FDIC said it had taken over the bank through its newly created entity, and that all SVB deposits had been transferred to the new bank.
The FDIC said Silicon Valley Bank had total assets of $209 billion at the time of its collapse.
It was not immediately clear how much of its deposits exceeded the $250,000 insurance limit.
Insured depositors can withdraw their deposits on the morning of the 13th.
Depositors whose deposits exceed the insured limit will receive a certificate of bankruptcy for the excess amount.
On March 10, 2023 local time, people stand at the gate of Silicon Valley Bank in Santa Clara, California.
Will the "Lehman moment" repeat itself?
The story of Silicon Valley Bank began with a poker game among friends.
Founders Bill Biggerstaff and Robert Mediaris wanted to provide credit and banking services to Silicon Valley's burgeoning start-ups.
"Helping individuals, investors and the world's most innovative companies realize their ambitions." This is the vision of Silicon Valley Bank.
Along with a spate of Silicon Valley start-ups, Silicon Valley Bank went public on Nasdaq in 1987, and over the next few years it established a specialty finance division, expanded its reach to the East Coast, and launched international services.
If a company founder wants to find new investors or go public, it is seen as good business sense to have a relationship with SVB.
At the end of 2022, Silicon Valley companies had total assets of $209 billion and more than $175 billion in deposits.
However, today's Silicon Valley Bank has fallen like a card.
It was the largest failure of a financial institution since Washington Mutual collapsed at the height of the financial crisis more than a decade ago, and the second-largest bank failure in U.S. history.
The subprime mortgage crisis in 2007 started in the United States and spread to Asia and Europe, triggering the biggest financial crisis since the Great Depression and affecting the whole world.
The panic on Wall Street led to the collapse of Lehman Brothers, the famous investment bank founded in 1847.
The chain reaction across the global financial system has caused millions of jobs to be lost due to the close ties between the major banks.
Some people worry that the spread of the Silicon Valley banking crisis will lead to a repeat of the "Lehman moment"?
The Associated Press pointed out that Silicon Valley Bank is mainly oriented to the technology industry, which means that the entire banking industry is unlikely to have a chain reaction like it did more than a decade ago.
The biggest banks -- the ones most likely to cause systemic economic problems -- have healthy balance sheets and ample capital.
However, the banking sector has been on edge throughout the past week.
The "Wall Street Journal" said that the market value of the four major U.S. banks evaporated by about US$52 billion on the 9th, and a broader bank stock index also had its worst single-day performance in nearly three years.
Bank stocks continued to plummet on the morning of the 10th, and some stocks were suspended due to violent fluctuations.
Ashley Tyner, chief executive of wellness company FarmboxRx, said she had spoken to several friends who had VC backing.
She described her friends as "crazy" over the collapse of Silicon Valley Bank.
Tyner's chief operating officer tried to withdraw the company's funds on the 9th, but was unable to do so in time.
"A friend cried when they said they couldn't pay and had to notify 200 employees," Tyner said.