Extracts from America’s second-biggest bank failure

New York (CNN) The 48-hour collapse of a Silicon Valley bank led to the second-largest failure of a financial institution in US history.

SVB is one of the 20 largest commercial banks in the United States and is currently under the control of the US Federal Deposit Insurance Corporation after it was unable to repay customers whose deposits were withdrawn.

While experts have played down fears of widespread contagion, the bank’s collapse could cause significant changes in the startup and tech sectors.

Here’s everything we know so far.

SVB was a big bank

Silicon Valley Bank, founded in 1983, has financed nearly half of US venture-backed technology and health care companies — which have been hit by high interest rates and dwindling venture capital.

Relatively unknown outside of Silicon Valley, SVB was among the top 20 U.S. commercial banks with $209 billion in total assets at the end of last year, according to the FDIC.

Its stunning, and seemingly rapid, collapse was the largest shutdown of a U.S. bank since Washington Mutual in 2008.

The FDIC acted unusually quickly

The wheels began to come off on Wednesday when SVB announced that it had sold some bonds at a loss and would sell $2.25 billion in new shares to shore up its balance sheet.

California regulators Closed the technical lender Friday. The FDIC acts as a receiver, which generally repays the bank’s assets to its customers, including depositors and borrowers.

The FDIC, an independent government agency that insures bank deposits and oversees financial institutions, said all insured depositors would have full access to their insured deposits by Monday morning. It said it would pay “advance dividend within the next week” to uninsured depositors.

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The FDIC took over at midnight on Friday — usually waiting until markets close.

“SVB’s condition deteriorated so quickly that it couldn’t last another five hours,” said Better Markets CEO Dennis M. Kelleher wrote. “That’s because its depositors withdrew their money so fast that the bank became insolvent, and an intraday shutdown was inevitable because of a classic bank move.”

High interest rates led to its demise

To combat rampant inflation, the central bank has been raising interest rates aggressively since 2022. It made loans to businesses and individuals more expensive to cool the economy.

When interest rates were near historic lows, banks bought long-term, seemingly low-risk Treasuries. But as rates rose, the value of those assets fell, leaving them sitting on unrealized losses.

High rates significantly constrained tech companies, which drove down the value of tech stocks and made it harder to raise funds.

Faced with these high interest rates, IPO losses and financial drought, SVB customers started withdrawing money from the bank.

“Higher rates have also reduced the value of their Treasuries and other bonds owed to SVB depositors,” said Mark Jandy, chief economist at Moody’s. “All of this started running into their deposits, which forced the FDIC to take over SVB.”

This is not yet a banking crisis

On Thursday, billionaire hedge fund manager Bill Ackman SVB was compared to Bear StearnsIt was the first lender to collapse at the start of the 2007-2008 global financial crisis.

“The risk of failure and deposit losses is that the next, less invested bank faces a run and fails, and the dominoes continue to fall,” Ackman wrote on Twitter.

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But most analysts now see SVB’s implosion as company-specific, write Julia Horowitz and Anna Couben.

Banks and lenders with specialized clients like SVB will feel the brunt of the fallout.

“The reason [SVB is] They’re in trouble because of their exposure to specific industries,” said Jonas Goldermann, deputy chief market economist at Capital Economics. Most other banks are also “diversified,” he said.

Concerns about the stability of the banking sector are also less due to significant regulatory reforms brought in after the 2008 crisis.

Overall, everyday consumers are unlikely to be affected. But the slump is a good reminder to know where your money is and not keep it all in one place.

“The first bank failure since 2020 is a wake-up call for people to always make sure their money is in an FDIC-insured bank, within FDIC limits and following the FDIC’s rules,” said Bank Review analyst Matthew Goldberg.

Tech companies are scrambling

SVB was a great lender to the startup community. Its founders now worry about getting their money, getting paid and covering operating costsWritten by Catherine Thorbecke.

“Now that the bank has collapsed, I want to know what happens next,” Ashley Turner, founder of health food delivery company FarmboxRx, told CNN in an email. “The FDIC covers the 250K, but am I going to get my full 8 figures back?”

Some people get creative. Children’s toys, clothing and experience retailer CAMP sent an email to customers on Friday and ran an ad on their site.

“Unfortunately, most of our company’s cash assets were in the bank and it collapsed. I’m sure you’ve heard the news.” It urged customers to use code BANKRUN to save 40% (or pay full price — it would be appreciated) on all merchandise.

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Other lenders are feeling the pain

Lenders, like SVB, are in an unfortunate situation.

Crypto-focused lender Silvergate said it will wind down its operations and liquidate the bank after suffering financial losses from the digital asset turmoil.

“In light of recent industry and regulatory developments, Silvergate believes that an orderly winding down of banking operations and a voluntary liquidation of the bank is the best course of action,” it said in a statement on Wednesday.

But the risks of a wider epidemic are now thought to be limited.

“Overall, the banking system is in good shape and able to withstand significant shocks,” said Jens Hagendorf, professor of finance at King’s College London. “I think SVB is unique in that they have a non-volatile depositor base.”

Shares fell on Friday

The Dow fell 345 points, or 1.1%, on Friday. The S&P 500 fell 1.5% and the Nasdaq Composite fell 1.8%.

For the week, the Dow fell 4.4%, its worst week since June. The S&P 500 fell 4.6% and the Nasdaq fell 4.7%.

Wall Street’s fear gauge, the VIX, rose 15% Friday afternoon as investors rushed to safe havens to avoid being dragged into any banking sector contagion, the markets group said.

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