The collapse of SVB Financial Group represents the second-largest bank failure in U.S. history and marks the end of a long quiet period in traditional bank insolvencies since the Great Financial Crisis.
The Silicon Valley Bank parent's $211.79 billion of assets and $173.11 billion of deposits at the end of 2022 compare with the $309.73 billion of assets and $181.92 billion of deposits at Washington Mutual Inc. at the end of its final quarter before its failure and sale to JPMorgan Chase & Co. in 2008.
The company's downfall is also the first failure since 2020 and only the ninth since 2018, according to data from S&P Global Market Intelligence, as fears mount that a jump in interest rates that has put deposits in motion and sapped the value of bond portfolios could threaten other banks as well.
Fast rise and fall
SVB's market capitalization was $15.86 billion and its shares were valued at 1.3x book value just two days before regulators closed it March 10. The tech-focused bank had been suffering deposit outflows as venture funding dried up and its core, venture capital-backed customers burned through cash.
The bank's balance sheet previously expanded rapidly during the boom in the tech sector that prevailed during much of the pandemic — at the end of 2019, it had just $71.00 billion in assets — leaving it with large holdings of bonds that tumbled in value when the Federal Reserve started to jack up interest rates in 2022.
The bank attempted to launch an offering of about $2.25 billion of capital and announced a restructuring of its balance sheet shortly after hawkish remarks by Fed Chairman Jerome Powell cemented expectations that rates would go higher and stay high for longer. Its shares quickly nosedived, and panicked customers reportedly yanked their deposits.
On March 9, Silicon Valley Bank faced withdrawals of $42 billion and was left with a negative cash balance of approximately $958 million even though it was in sound financial condition prior to the one-day run, according to a regulatory filing.
"The precipitous deposit withdrawal has caused the bank to be incapable of paying its obligations as they come due, and the bank is now insolvent," the filing said.
Quiet period ends
There were 465 failures from 2008 through 2012, and another 42 failures in 2013 and 2014 as the economy slowly healed from that era's financial crisis. Since then, there have been just 30 failures, including Silicon Valley.
Now, fears that underwater bonds and unstable funding could sink other banks have hammered shares at companies like First Republic Bank, Western Alliance Bancorp. and PacWest Bancorp.
Silicon Valley stands out on several dimensions, however, including the fact that it had among the highest proportions of uninsured deposits relative to total deposits in the industry at 89.7%, according to Market Intelligence data.
The Federal Deposit Insurance Corp. said that uninsured depositors will receive an "advance dividend within the next week," and a "receivership certificate" for their remaining funds.