How a bank collapsed in 48 hours: a timeline of the demise of the SVB
The collapse of the Silicon Valley Bank (SVB) is considered the biggest bank failure since the global financial crisis or what was also known as Washington Mutual in 2008. The go-to bank for several start-ups in the United States and abroad saw a quick fall into their heirs and leave its powerful clients and investors in limbo.
Startup founders in California’s Bay Area are panicking about access to money and paying employees. Contagion fears have reached Canada, India and China. In the United Kingdom, SVB’s division is about to go bankrupt, has already ceased trading and is no longer taking on new clients. On Saturday, the leaders of about 180 tech companies sent a letter calling on British Chancellor Jeremy Hunt to intervene.
Here’s a timeline of how a bank collapsed in just 48 hours
The SVB Paranoia
-On Wednesday, March 8, SVB sold $21 billion worth of bonds for a loss of $1.8 billion. The bank also announced a capital increase.
– Despite this, the bank witnessed a wave of withdrawals
Furthermore, the announcement by crypto-based lender Silvergate on Wednesday of a plan to wind down operations and facilitate liquidation due to heavy losses following the collapse of crypto exchange FTX led to more withdrawals from SVB
The SVB crash
-This sent SVB stock into a downward spiral and crashed over 60%
-On Thursday, March 9, the end of business day record showed that the SVB had a negative cash balance of $958 million. The filing also stated that “despite the bank being in sound financial condition prior to March 9, investors and depositors responded by withdrawing $42 billion in deposits, sparking a run on the bank.”
The FDIC acquisition of SVB
– On Friday, March 10, the Federal Deposit Insurance Corporation (FDIC) announced that SVB “has been closed today by the California Department of Protection and Innovation, which has appointed the FDIC as trustee”
-FDIC has communicated that all insured depositors will have full access to their deposits until Monday, March 13
-They also noted that the insured deposits have a limit of $250,000. Anyone with more than $250,000 in their account must call a toll-free number.
-FDIC will from now on supervise the sale of SVB’s assets. The uninsured depositors will receive dividends from asset sales.
What is SVB?
The Silicon Valley Bank was founded in 1983. It specialized in banking for tech startups. It financed nearly half of the venture capital-backed technology and healthcare companies in the US. This bank was also among the top 20 U.S. commercial banks, with total assets of $209 billion at the end of last year, according to the FDIC.
What is the future for SVB
So while a wider contagion is unlikely, smaller banks that are disproportionately tied to cash crunch sectors such as tech and crypto could take a beating. CNN quoted Ed Moya, senior market analyst at Oanda.
“Everyone on Wall Street knew the Fed’s rate hike campaign would eventually break something, and right now small banks are being toppled,” Moya said Friday.
The FDIC typically sells a bankrupt bank’s assets to other banks and uses the proceeds to pay back depositors whose money was uninsured.
There may still be a buyer for SVB, although that is by no means certain.