Silicon Valley Bank (SVB) was seized by the Federal Deposit Insurance Corporation (FDIC) on Friday in the second-largest bank failure in U.S. history and the largest since the 2008 financial crisis. The failure stemmed from a run on the bank triggered by news Wednesday of nearly $2 billion in losses.
The California-based bank stated in a press release on Wednesday that it had losses of $1.8 billion and was seeking to raise $2.2 billion in capital, news that some in the venture capital community found alarming.
This led to SVB’s shares falling by 60% Thursday after venture capital firms such as USV, Founders Fund, and Cannon Partners advised some of their portfolio companies to take their accounts out of the bank.
On Friday, the FDIC stepped in to seize the bank after it became apparent that SVB could not obtain the needed funds to meet customer demand for withdrawals.
Chenxi Wang, founder and general partner for Rain Capital, told The Dallas Express that SVB’s quick downward trajectory was caused indirectly by the rise in interest rates from the Federal Reserve.
“There is no question that SVB is in a cash crisis because of its overexposure to the tech sector,” Wang said in an email. “The bank also made balance sheet management errors by putting too much money into long-term bonds, which became a problem when interest rates surged. This, coming on the heels of the Silvergate Bank liquidation, caused non-trivial panic.”
The Silvergate Bank liquidation occurred when the bank suffered more than $1 billion in losses in the fourth quarter of 2022, according to The Guardian. Silvergate Bank was known for being a cryptocurrency-focused bank and was likewise based in California.
“A large bank will step in to acquire SVB, and the FDIC will work with them to make depositors whole. But in the short term, access to capital sitting within SVB could be problematic,” Wang said.
SVB customers withdrew a whopping $42 billion by the end of Thursday, according to a California state regulatory filing, and the bank found itself with a negative $958 million cash balance while simultaneously failing to acquire funding from other sources.
Although not nearly as impactful, Wells Fargo suffered Friday from a technical glitch that alarmed some customers. The glitch kept certain transactions from posting, causing incorrect balances in the accounts.
Wells Fargo said in a statement per USA Today that its accounts were secure and the balances would be corrected by Saturday.