State regulators close Silicon Valley Bank

The California Department of Financial Protection and Innovation closed Silicon Valley Bank after its stocks sputtered on Friday, signaling that the bank has failed.

Insured depositors will have access to their deposits no later than Monday, the Federal Deposit Insurance Corp. said. Deposits are insured up to $250,000, though it is unclear how many of SVB’s clients exceed that threshold.

It is the largest bank failure since Washington Mutual in 2008, the Associated Press reported.

Silicon Valley Bank was the 16th largest bank in the country, holding $210 billion in assets, according to the Associated Press. Established in 1983, It was a major lender for the tech industry with offices around the world. It had a history of lending to startups, and some of its early clients include giant companies such as Cisco.

More than half of SVB’s current loans went to major venture capital and private equity firms, another quarter went to tech and life sciences companies, 14% went to individual clients mostly comprising “high net worth” people and “executive leaders and senior investment professionals in the innovation economy,” and about 2% went to wineries and vineyards. Much of the bank’s loan portfolio was made up of loans equal to or greater than $20 million to any single client, for a total of $46.8 billion, or 63% of its portfolio.

The bank is based in Santa Clara and has about 6,500 workers, according to TechCrunch.

SVB lost $1.8 billion in the sale of U.S. treasuries and mortgagebacked securities in which it had invested, thanks to rising interest rates, TechCrunch reported. On top of that, the bank was facing shrinking deposits as the tech industry struggled.

Amid these concerns, the company announced it would sell $1.25 billion of its common stock to investors, $500 million of depositary shares and, separately, $500 million of common stock to private equity firm General Atlantic. After the announcement, shares in SVB plummeted nearly 70% before trading was halted before the opening bell on the Nasdaq, the Associated Press Reported. Clients began pulling out their money, leading to a run on the bank.

On Friday morning, before the bank’s closure, CNBC reported that SVB’s efforts to sell its shares had failed and it was scouting for a buyer.

While the FDIC may still find a buyer for the bank, which could alleviate many issues, it is unclear what will happen to clients’ money until then. The bank’s clients who have deposits exceeding the $250,000 threshold may not be able to pay employees next week, Brad Hargreaves, who has founded several startups, wrote on Twitter. He added that the closure could trigger more mass layoffs for the tech industry in the coming days.

But the Associated Press reported that there is “little chance of contagion” of failure at other banks because SVB was uniquely tied to the tech industry, and major banks have sufficient capital to avoid a domino effect.

Rep. Eric Swalwell, D-Castro Valley, wrote on Twitter that he is working with his California colleagues to address the crisis.

“We must make sure all deposits exceeding the FDIC $250k limit are honored. Banking is about confidence,” he wrote. “If depositors lose confidence on the safety of their deposits over 250k then we are in trouble.”