Global News

Breaking news & current latest Canadian news headlines; national weather forecasts & predictions, local news videos, money and financial news; sports stats and scores.

Silicon Valley Bank collapse: How the financial institution fell into ruin.

Click to play video: 'Biden outlines measures that secured American banking system following SVB collapse'

WATCH: Biden outlines measures that secured the American banking system following the SVB collapse

Silicon Valley Bank’s (SVB) collapse last week has led to fears that other banks could face a similar fate amid record-high inflation and lending rates.

But what exactly led SVB to go under last week? Here’s what we know.

It hasn’t been just the Bank of Canada; the U.S. Federal Reserve has been raising interest rates from their record-low levels since last year in its bid to fight inflation.

Investors have less appetite for risk when the money available to them becomes expensive due to higher rates, which weighed on technology startups — the primary clients of SVB — because it made their investors more risk-averse.

Furthermore, tech companies have been hit hard in the past 18 months as the Federal Reserve has raised interest rates.

Higher interest rates caused the market for initial public offerings to shut down for many startups and made private fundraising more costly.

As a result, some SVB clients started pulling money out to meet their liquidity needs, resulting in SVB looking for ways last week to meet its customers’ withdrawals.

That brings us to what happened last Wednesday — March 8.

SVB had a US$21-billion bond portfolio consisting mostly of U.S. Treasuries — but holdings of government-backed bonds have fallen in value due to rising interest rates.

To fund their clients’ redemptions, SVB sold that portfolio on Wednesday.

It was yielding an average 1.79 per cent, far below the current 10-year Treasury yield of around 3.9 per cent. As a result, SVB took a US$1.8-billion loss, which it needed to fill through a capital raise.

On Thursday, SVB said it would sell US$2.25 billion in stock to fill its funding hole.

But its shares ended the trading day down 60 per cent in value with investors fearing the deposit withdrawals might push it to raise even more capital.

According to Reuters reporting, some SVB clients pulled their money from the bank on the advice of venture capital firms such as Peter Thiel’s Future Fund, spooking investors such as General Atlantic that SVB had lined up for the stock sale.

The capital-raising effort collapsed late on Thursday.

SVB scrambled on Friday to find alternative funding, including through a sale of the company.

Later in the day, the Federal Deposit Insurance Corporation (FDIC) announced that SVB was being shut down and placed under its receivership. The unusual move, in the middle of the business day, spoke to how dire the situation had become.

The FDIC added that it would seek to sell SVB’s assets and that future dividend payments may be made to uninsured depositors.

But the uncertainty quickly spurred fears about what would happen to deposits above the $250,000 insured threshold, leading to worries that many tech firms that used the bank would be unable to even make payroll come Monday morning.

On Sunday morning, U.S. Treasury Secretary Janet Yellen told CBS’s Face The Nation that a federal bailout for the ruined bank was not in the works, but that officials were working on a plan to save depositors and restore confidence in the banking system.

Prominent Silicon Valley personalities and executives have been hitting the giant red “panic” button, saying that if Washington does not come to the rescue of Silicon Valley bank’s depositors, more bank runs are likely.

“The gov’t has about 48 hours to fix a soon-to-be-irreversible mistake,” Bill Ackman, a prominent Wall Street investor, wrote on Twitter. Ackman has said he does not have any deposits with Silicon Valley Bank but is invested in companies that do.

Some other Silicon Valley personalities have been even more bombastic.

“On Monday 100,000 Americans will be lined up at their regional bank demanding their money — most will not get it,” Jason Calacanis wrote on Twitter. Calacanis, a tech investor, has been close with Elon Musk, who recently took over the social media network.

After a dramatic weekend, U.S. regulators on Sunday announced their plan.

SVB customers will have access to all their deposits starting Monday, and regulators set up a new facility to give banks access to emergency funds. The U.S. Federal Reserve also made it easier for banks to borrow from it in emergencies.

Regulators also moved swiftly to close New York’s Signature Bank, which had come under pressure in recent days. Signature was a commercial bank with private client offices in New York, Connecticut, California, Nevada and North Carolina, and had nine national business lines, including commercial real estate and digital asset banking.

Silvergate Capital also said last week that it was voluntarily shutting down its bank. It served the crypto industry and had warned it could end up “less than well-capitalized.”

Meanwhile in Canada, the country’s banking regulator temporarily seized the assets of SVB’s lone Canadian branch in Toronto on Sunday night to protect the rights and interests of the branch’s creditors.

In a statement released Sunday, the Office of the Superintendent of Financial Institutions (OSFI) said SVB’s Toronto branch has been primarily lending to corporate clients, and that the branch does not hold any commercial or individual deposits in Canada.

Superintendent Peter Routledge said in the release that he has also given notice of an intention to seek permanent control of the Canadian branch’s assets, and is requesting the attorney general of Canada apply for a winding-up order.

OSFI said it has closely monitored SVB’s Canadian branch since the onset of the bank’s difficulties. It added that consistent with globally accepted international Basel III standards, it “continues to undertake diligent supervision of federally regulated banks in Canada, including robust requirements for capital and liquidity adequacy.”

Markets, however, tumbled after opening and fears remain about whether the fear and contagion of the bank failures will spread. The question for Monday and the rest of the week now appears to be: what will happen next?

— with files from Reuters and The Associated Press

silicon valley bankSVBSignature BankSilicon Valley Bank collapseSVB collapseSignature bank collapsesvb bank collapsesvb bank stocksvb what happenedSilicon Valley Bank newssilicon valley bank stocksvb financial stockwhat happened at svbwhat happened to silicon valley bank

Journalistic standards Report an error

© 2023 Global News, a division of Corus Entertainment Inc.

It’s a way to understand what your audience needs and how to give it to them. After all, the task of any product is to be useful.
Останні новини
New audio of SVB head downplaying financial risk days before the bank's collapse.

New audio of SVB head downplaying financial risk days before the bank's collapse.

Sources say the Justice Department and FBI are investigating Silicon Valley Bank's collapse with part of the FBI's early focus expected to be regarding any evidence of insider trading. WATCH FULL EPISODES OF WORLD NEWS TONIGHT: WATCH WORLD NEWS TO...

South Carolina GOP leaders say bill criminalizing abortion as homicide ‘won’t happen’.

South Carolina GOP leaders say bill criminalizing abortion as homicide ‘won’t happen’.

South Carolina's Republican leaders are saying that a bill that would criminalize abortion as a homicide "won't happen," after a group of lawmakers are imposing the death penalty on those who get the procedure. WIS's Mary Green reports. » Subscrib...

MPD lieutenant retires one day before hearing over Tyre Nichols death.

MPD lieutenant retires one day before hearing over Tyre Nichols death.

Former Lieutenant DeWayne Smith was the on-scene supervisor the night Tyre Nichols was beaten to death. Smith announced his retirement one day after he received notice he was being charged by the department for violating policies. WMC reports. » S...

Fire, Scuffles as Protests Continue in France - VOA News.

Fire, Scuffles as Protests Continue in France - VOA News.

Paris police clashed with demonstrators for a third night Saturday, as thousands of people marched throughout the country amid anger at the government pushing through a rise in the state pension age without a parliamentary vote. The growing unrest...

Trump predicts his arrest in hush money case and calls for protests.

Trump predicts his arrest in hush money case and calls for protests.

Former President Donald Trump predicted his own arrest on Tuesday in a case that centers on whether then-candidate Trump directed his attorney Michael Cohen to pay off adult film star Stormy Daniels in 2016. On social media, the former president c...

Putin defiant after arrest warrant

Putin defiant after arrest warrant

The ICC arrest warrant for the alleged deportation of Ukrainian children loomed over Russian President Vladimir Putin's visit to Crimea to mark nine years since Russia's annexation of the peninsula. WATCH FULL EPISODES OF WORLD NEWS TONIGHT: WATCH...