Silicon Valley Bank was one of America’s 20 largest commercial banks and is now under the control of the US Federal Deposit Insurance Corporation after it became unable to pay back customers who withdrew their deposits. Though experts quelled fears of a wider contagion, the bank’s collapse could have significant ramifications on the startup and tech sectors.
Here are the key things to know:
The FDIC acted unusually quickly
The FDIC, an independent government agency that insures bank deposits and oversees financial institutions, took over in the midmorning Friday; usually it waits until markets close. The FDIC is acting as a receiver, which typically means it will liquidate the bank’s assets to pay back its customers, including depositors and creditors.
It said all insured depositors will have full access to their insured deposits by no later than Monday morning. It said it would pay uninsured depositors an “advance dividend within the next week.”
High interest rates led to its demise
The Fed has been aggressively raising interest rates since 2022 to combat rampant inflation. But that made borrowing for businesses and individuals more expensive. High rates significantly constrained tech companies, which undercut the value of tech stocks and made it difficult to raise funds.
Faced with higher interest rates, loss of IPOs and a funding drought, SVB’s clients began pulling money out of the bank.
There’s a lot to lose
US customers held at least $151.5 billion in uninsured deposits by the end of 2022, SVB’s latest annual report said. Foreign deposits reached at least $13.9 billion and are also uninsured.
Companies may have gotten a decent amount out during the bank run, but there is still a lot of money at stake if a buyer or bailout isn’t reached.
Roku held approximately $487 million of its $1.9 billion in cash at Silicon Valley Bank, 26% of the company’s total. The streaming company added most of the deposits were uninsured. Video game site Roblox and bankrupt cryptocurrency lender BlockFi are also facing the fallout.
This is not a bank crisis yet
Most analysts say the implosion of SVB appears company-specific for now.
“The reason [SVB is] in trouble is because they have exposure to particular industries,” said Jonas Goltermann, deputy chief markets economist at Capital Economics. Most other banks, he added, are more “diversified.”
There’s also less anxiety about the stability of the banking sector due to the significant regulatory reforms put in place after the crisis in 2008.
Everyday consumers, on the whole, are unlikely to be affected. But the collapse is a good reminder to be aware of where your money is held, and not to have it all in one place.
“The first bank failure since 2020 is a wake-up call for people to always make sure their money is at an FDIC-insured bank and within FDIC limits and following the FDIC’s rules,” Matthew Goldberg, a Bankrate analyst said.
Tech companies are scrambling
SVB was a top lender for the startup community, whose founders now worry about getting their money out, making payroll and covering operating expenses.
“Now that the bank has folded, I just want to know what happens next,” Ashley Tyrner, founder of health food delivery company FarmboxRx, told CNN in an e-mail. “The FDIC covers 250K, but am I going to recover my whole 8 figures?”
Some are getting creative. Children’s toy, apparel and experience retailer CAMP urged customers to use the code BANKRUN to save 40% off all merchandise (or pay full price – which it said would be appreciated).
Other lenders are feeling the pain
Lenders somewhat similar to SVB are in an unfortunate situation.
Crypto-focused lender Silvergate said it is winding down operations and will liquidate the bank after being financially pummeled by turmoil in digital assets.
CNN’s Matt Egan contributed to this report.