Silicon Valley Bank, the 16th largest bank in the US, failed after depositors hurried to withdraw money this week amid concerns about the bank’s health.
It was the second biggest retail bank failure in US history, after the collapse of Washington Mutual in 2008 was triggered by the global financial crisis.
“Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver,” a statement from regulators read on Friday.
As of December 31, Silicon Valley Bank had approximately $209 billion in total assets and about $175.4 billion in total deposits.
It had 17 branches in California and Massachusetts and served mostly technology-focused companies based in Silicon Valley.
The main office and all branches of Silicon Valley Bank will reopen on March 13 and all insured depositors will have full access to their deposits no later than Monday morning, the statement said.
FDIC-insured funds are covered up to $250,000 and there are concerns that a large number of accounts at SVB hold more than that amount.
In the last 15 years, several retail banks have collapsed around the world.
In 2008, Washington Mutual, with total assets worth $307 billion was closed by the US government and its banking assets were sold to JPMorgan Chase and Company for $1.9 billion amid the global financial crisis.
The same year, the UK-based HBOS bank collapsed, triggered by the global financial crisis. It was subsequently rescued by a government-engineered takeover by Lloyds Banking Group, which subsequently needed a £20 billion taxpayer bailout.
Other banks that also went through a similar situation include Germany’s Sachsen LB with total assets of $92 billion, the UK’s Bradford and Bingley with assets of about $63 billion, and IndyMac, a California bank that had grown into one of the largest mortgage lenders in the US.
According to the FDIC website, the US recorded 25 bank failures in 2008, 140 in 2009, 157 in 2010 and 92 in 2011, triggered by the global financial crisis. The world’s largest economy also recorded 51 bank failures in 2012, 24 in 2013 and 18 in 2014.
Twenty-nine banks also collapsed in the US between 2015 and 2020, the data shows.
SVB was the first bank to collapse this year, while there were no bank failures in 2021 and 2022.
The FDIC is an independent agency of the US government created to maintain stability and public confidence in the nation's financial system. The FDIC insures deposits, examines and supervises financial institutions for safety, soundness, and consumer protection.
When a bank fails, the FDIC will arrange the sale of the bank customer's assets to a healthy bank, or, less commonly, the FDIC will pay the bank deposits back directly, according to the Experian website.
Between 2001 and 2022, 561 banks failed, it said citing FDIC data. The likelihood of losing money is extremely small as long as an FDIC-insured institution holds it, it added.
The latest development takes place as the US economy is set to slow down this year amid higher inflation and the fallout from the coronavirus pandemic.
The world's largest economy is forecast to expand 1.4 per cent in 2023, instead of a previous 1.6 per cent estimate, down from 2 per cent last year and 5.7 per cent in 2021, the International Monetary Fund said in a recent report.