Silicon Valley bank failure rattles markets
Regulator’s intervention over tech-focused lender’s losses triggers crisis of confidence for investors
The biggest US banking failure since the financial crisis triggered a sell-off in global markets amid fears about contagion. US regulators last night stepped in after a run on California’s Silicon Valley Bank forced it to put itself up for sale. The intervention triggered panic in global markets, with the FTSE 100 closing down 1.67pc in London. The Bank of England is understood to be monitoring the situation, although it believes that the largest lenders are resilient.
THE biggest US banking failure since the financial crisis has triggered a selloff in global markets amid fears about contagion.
US regulators last night took control of California’s Silicon Valley Bank after a run on the bank forced it to put itself up for sale.
The intervention triggered panic in global markets, with the FTSE 100 closing down 1.67pc in London. Billions were wiped off the value of Barclays and HSBC as investors scrambled to figure out how widespread the problems that hit Silicon Valley Bank could be.
The tech-focused lender was worth $44bn (£37bn) at its peak but was forced into the arms of regulators after suffering losses on its investments, which triggered a crisis of confidence.
Silicon Valley Bank told staff to work from home until further notice as customers pulled funds from their accounts under pressure from investors.
Officials last night took control of the bank in a move that threatens to wipe out billions in deposits, hours after shares were suspended.
The Bank of England is understood to be monitoring the situation and making contact with Uk-headquartered banks, although it believes that the largest lenders are resilient. Silicon Valley Bank’s British subsidiary works with tech companies and other growth businesses, offering business accounts, loans and advisor services.
Hundreds of British businesses are understood to have been blocked from withdrawing their funds after Silicon Valley Bank UK refused to waive a 30-day notice period on withdrawals that affects up to half of its customers.
Executives have been seeking to reassure customers that it is immune to its US parent’s problems. Silicon Valley Bank’s UK entity, which is owned by the US parent but whose assets are ringfenced, said it was a “standalone independent banking institution that is regulated and governed by the Prudential Regulation Authority (PRA)”.
Many start-ups were seeking to take out their cash imminently, fearing con- tagion. Venture capital firm Hoxton Ventures said it had advised companies to take out several months of operating costs in case funds are frozen.
Silicon Valley Bank UK and the PRA did not comment last night on its future after the US lender’s collapse.
California’s Department of Financial Protection and Innovation said it had “taken possession of Silicon Valley Bank, citing inadequate liquidity and insolvency”. The takeover means that customers’ deposits are only protected up to $250,000 if the bank cannot find a suitable buyer. It is the second-largest banking collapse in US history by assets after Washington Mutual, which failed in 2008.
Confidence in the bank had collapsed after it revealed on Wednesday that it had lost $1.8bn on the sale of $21bn worth of bonds and mortgage-backed securities. The lender said it planned to raise billions to cover the losses.
Regulators moved in after Silicon Valley Bank suspended Wall Street trading following a collapse in the company’s share price that forced it to abandon those plans and sell itself. Shares had fallen by 60pc on Thursday as technology businesses rushed to withdraw their funds under pressure from influential venture capital investors.
The bank’s loss-making investments were made during the pandemic, when interest rates hit historic lows. Their value has dropped as a result of rising rates in recent months.
The revelation sent tremors through the financial system amid concerns that other banks could be vulnerable to similar discounting. US employment numbers released on Friday suggested that the Federal Reserve may have to continue raising interest rates to combat inflation.
Some 311,000 jobs were created in February, which was well above the consensus of 205,000. However, the figure marks a slowdown from an unusually sharp rise of 504,000 in January.
In London, HSBC, Standard Chartered and Barclays were among the biggest fallers on the FTSE 100, falling by between 3pc and 6pc.
In Europe, Deutsche Bank and Société Générale fell 6pc and 5pc respectively, while Credit Suisse dropped 4.7pc to a new record low. Bank of America, whose shares slumped on Thursday as the crisis around Silicon Valley Bank grew, fell a further 5pc at the open before paring back the losses. Goldman Sachs fell by 2.5pc.
There are concerns that customers may start to withdraw funds across the banking system, forcing some lenders to either offload bonds at a loss or pay higher interest rates to keep customers.