Regulators seize Silicon Valley Bank

Failure is second largest in U.S. history; treasury had ties to tech industries

— U.S. regulators rushed New York to seize the assets of Silicon Valley Bank on Friday after a run on the bank, marking the largest failure of a financial institution since Washington Mutual collapsed at the height of the financial crisis more than a decade ago.

Silicon Valley Bank, the nation’s 16th largest bank, failed after its depositors — mostly technology workers and venture capital-backed companies — hurried to withdraw money this week as anxiety over the bank’s health spread. It is the second biggest bank failure in U.S. history.

The bank had deep ties to Silicon Valley industries and startups. Y Combinator, an incubator startup that has launched companies such as Airbnb, DoorDash and Dropbox, has referred hundreds of entrepreneurs to the bank.

“This is an extinction-level event for startups,” Y Combinator CEO Garry Tan said. “I literally have been hearing from hundreds of our founders asking for help on how they can get through this. They are asking, ‘Do I have to furlough my workers?’”

Tan estimated nearly one-third of Y Combinator’s startups won’t be able to make payroll at some point in the next month if they can’t access their money. He said he is asking regulators and lawmakers if the startups can be eligible for financial aid.

Silicon Valley was heavily exposed to tech industry but there is little chance of chaos spreading in the broader banking sector like in the months leading up to the Great Recession more than a decade ago. The biggest banks — those most likely to cause a widespread economic meltdown — have healthy balance sheets and plenty of capital.

There has been unease in the banking sector all week and the news of Silicon Valley Bank’s distress pushed shares of almost all financial institutions lower Friday, shares that had already tumbled by double digits since Monday.

Silicon Valley Bank’s failure arrived with incredible speed, with some industry analysts on Friday suggesting it was a good company and still likely a wise investment. Silicon Valley Bank executives were trying to raise capital early Friday and find additional investors. However, trading in the bank’s shares was halted before stock market’s the opening bell due to extreme volatility.

Silicon Valley was heavily exposed to tech industry but there is little chance of chaos spreading in the broader banking sector like in the months leading up to the Great Recession more than a decade ago.