The State of California has ordered the closure of Silicon Valley Bank and will take control of the entity

US authorities closed Silicon Valley Bank on Friday to protect its customers’ deposits and will reopen the institution under federal supervision on Monday, official sources said, amid fears that the financial institution’s problems could spread to the rest. of the banking sector.

The bank, which works with the technology sector, was surprisingly short on cash.

California’s Department of Financial Protection and Innovation (DFPI) has shut down SVB and appointed the Federal Deposit Insurance Corporation (FDIC) as the depository for the bank’s funds, the federal agency reported on Friday.

The DPFI “has taken ownership of Silicon Valley Bank, citing insufficient liquidity and insolvency,” the California agency said.

The bank’s 17 branches will reopen on Monday under the control of a new entity specifically created by the FDIC to manage the institution’s operations.

In the short term, customers will be able to withdraw up to $250,000. Customers with the most money in the bank — the vast majority — were told to contact the FDIC.

The SVB is the first institution with federally guaranteed deposits to file for bankruptcy since 2020, according to the FDIC.

The situation has investors concerned that other banks may face difficulties due to central bank interest rate hikes to contain inflation.

Silicon Valley Bank (SVB) was a California-based bank specializing in the technology sector, which worked mainly with funds investing in unlisted companies.

Little known to the general public, it was the 16th American bank by the size of its assets.

The company, which operated in the United States, Europe, Asia and Israel, offered financial services to start-ups, among others, ranging from simple bank accounts to capital advice.

Closely linked to technology companies, the SVB suffered from the deterioration of the sector: the sharp rise in interest rates in the United States which affects a branch very dependent on financing to develop, added to the difficulties in supplying semiconductors and weak investor appetite for tech stocks, mark the end of the post-pandemic tech euphoria.

Panic erupted after the bank’s parent company, SVB Financial Group, announced it would try to raise $2.25 billion in new funds.

The group quickly sold a $21,000 million portfolio of financial securities, with an estimated loss of $1,800 million.

The SVB sought to strengthen its finances, weakened by customer withdrawals.

According to CNBC, the bank was unable to secure the necessary capital and was negotiating its sale to another bank prior to the announcement by US regulators.

SVB’s difficulties spilled over the country’s borders and shocked the global banking sector by surprise.

At the end of 2022, the bank had $209 billion in assets and about $175.4 billion in deposits, authorities said.

Treasury Secretary Janet Yellen stressed this Friday ahead of the entity’s closure that “when banks have financial losses, that is and should be a matter of concern.”

The four largest U.S. banks lost $52 billion on Thursday, and the move also hit Asian and European banks, which saw steep market capitalization losses.

SVB’s woes roughly coincided with Wednesday night’s announcement of the liquidation of Silvergate Bank, a bank particularly active in the struggling cryptocurrency sector.

Since the financial crisis of 2008-2009 and the bankruptcy of Lehman Brothers, banks have been subject to regular stress tests and have to give assurances to regulators on their ability to respond to stressful situations.

(With information from AFP)

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