US shuts down Silicon Valley banks in biggest collapse since 2008

Tags: Economy/Finance International News

California-based Silicon Valley Bank (SVB), the 16th largest bank in the United States, was closed on 9 March by the California Department of Financial Protection and Innovation.

An overview of the news

  • It is the biggest banking failure since the 2008 financial crisis.

  • It is considered the biggest financial crisis since the collapse of Washington Mutual and Lehman Brothers during the 2008 recession.

  • The regulator appointed the Federal Deposit Insurance Corp. as the receiver.

  • As of December 31, 2022, the Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. 

  • The FDIC created a new bank, the National Bank of Santa Clara, to hold the failed bank's deposits and other assets. The new entity began operating.

Why did SVB have to be shut down?

  • SVB announced the sale of securities worth $21 billion from its portfolio.

  • The company said that to strengthen its financial position, shares worth $ 2.25 billion are being sold.

  • The widespread slowdown in the startup industry led to high deposit withdrawals in the bank, resulting in the move.

  • The increase in interest rates by the Federal Deposit Insurance Corp also messed up SVB Bank's math.

  • Experts believe that the biggest reason for the closure of SVB was the simultaneous withdrawal of money from the bank by its investors.

About Silicon Valley banks

  • It was established in 1983, it was the 16th largest bank in America.

  • It primarily invested in Silicon Valley based startups and provided banking related services.

  • It provided a range of services toventure capital and private equity firms, as well as private banking services to high net-worth individuals.

  • The firm had a deal with half of all venture-backed startups in the US in 2022.

  • As of December 31, 2022, the bank had close to $212 billion in assets with clients such as Shopify, Pinterest, VC firm Andreessen Horowitz, Crowdstrike and Teladoc Health.

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