`The Silicon Valley Bank (SVB), a leading lender to startups and venture capitalists, has been closed by regulators due to liquidity problems and financial mismanagement. The Federal Deposit Insurance Corporation (FDIC) announced on Friday that it had taken over the bank’s deposits and assets after the California Department of Financial Protection and Innovation (DFPI) revoked its license123.
The bank’s failure has sent shockwaves across the tech industry, as many startups and investors relied on its services and expertise. SVB had more than $100 billion in assets and $75 billion in deposits as of December 31, 20224. It also had a network of offices in major innovation hubs such as San Francisco, New York, Boston, London, Tel Aviv and Beijing4.
According to the FDIC, SVB’s troubles began when it failed to meet its capital requirements and liquidity ratios due to a series of bad loans and investments. The bank also faced allegations of fraud, insider trading and money laundering by some of its executives and employees5 . The DFPI launched an investigation into the bank’s practices last year and found “unsafe or unsound” conditions that posed “a serious threat” to its solvency1.
The FDIC said it was working with other regulators and potential buyers to find a resolution for SVB’s customers and creditors. It assured that all depositors would be fully protected by the federal insurance up to $250,000 per account1. However, some experts warned that SVB’s collapse could have ripple effects on the innovation ecosystem, as many startups may face difficulties in accessing capital, banking services and financial advice5 .
SVB’s CEO Greg Becker issued a statement expressing his “deep regret” for the bank’s failure and apologizing to all stakeholders. He said he was cooperating with the authorities to ensure a smooth transition for SVB’s clients. He also thanked his employees for their “dedication” and “hard work” over the years5.
The market reaction to SVB’s collapse was mixed. Some analysts said it was a warning sign for the Federal Reserve to tighten monetary policy and rein in excess liquidity that fueled risky lending practices. They also predicted that other banks could face similar challenges as interest rates rise and credit conditions tighten . Others argued that SVB was an isolated case that did not pose systemic risk to the financial system or the economy. They said that banks were more resilient than before thanks to regulatory reforms after the 2008 crisis. They also advised investors to buy the dip in bank stocks as they expected a swift recovery from any short-term volatility.