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Silicon Valley Bank is shut down by regulators. Here’s what to know.

California regulators on Friday abruptly shuttered Silicon Valley Bank, closing a 40-year-old financial institution that catered to the tech industry and that was the 16th largest U.S. bank before its sudden collapse. The company’s stock tumbled 60% on Thursday and had plunged another 70% on Friday before trading in its shares was halted. 

The nosedive reflected fears of a bank run, with mounting concerns that customers were on the verge of pulling their money from the bank. Instead, regulators stepped in to take control, with the California Department of Financial Protection and Innovation closing the bank and appointing the Federal Deposit Insurance Corporation (FDIC) as receiver.

Typically, bank stocks are staid affairs, which makes Silicon Valley Bank’s failure and its regulator-ordered closure all the more noteworthy. Here’s what to know about the bank’s startling downfall. 

What is Silicon Valley Bank? 

Silicon Valley Bank, founded in 1983, grew rapidly with the explosion of businesses in the tech-focused region, eventually expanding to more than a dozen states and countries including Israel, Ireland and Germany. It now ranks as the 16th largest bank in the country, holding $210 billion in assets. 

Silicon Valley Bank offers businesses lending products such as loans to help finance acquisitions or projects, with its website touting that it “helps businesses at every stage.” The bank also provides private banking services and other financial products. 

Why was it closed by regulators? 

The California Department of Financial Protection and Innovation on Friday said it has taken possession of Silicon Valley Bank. The reason, it said, was “inadequate liquidity and insolvency.”

What happens to depositors and clients? 

The FDIC said it created a new institution, the Deposit Insurance National Bank of Santa Clara (DINB), and that it had immediately transferred all insured deposits at Silicon Valley Bank to the new bank. All insured depositors will have access to their insured deposits by Monday morning, March 13, the FDIC said in a statement.

Meanwhile, uninsured depositors will receive “an advance dividend within the next week,” as well as a receivership certificate for the remaining amount of their uninsured funds.

The main office and its 17 branches will reopen for business on March 13, the FDIC said. 

“Banking activities will resume no later than Monday, March 13, including on-line banking and other services,” the agency said. “Silicon Valley Bank’s official checks will continue to clear.”

Why did the bank collapse? 

On March 8, Silicon Valley Bank parent SVB Financial Group said that it was taking “strategic actions,” including selling almost all of its available-for-sale securities — $21 billion in bonds. It also said it planned to issue stock as part of the plan to raise capital and strengthen its finances. 

SVB, which noted that it would take a $1.8 billion loss on the bond sales, said it needed to take the steps because of higher interest rates and “elevated cash burn levels” by customers. The company also pointed to “pressured public and private markets.”

The announcement spooked investors and sparked concerns that its clients could yank funds due to the bank’s financial uncertainty, which in turn would limit the bank’s ability to tap other liquidity sources, Brandon King, an analyst at Truist, said in a note to investors.

“The stock reaction today is evident of concerns around the bank’s liquidity,” King said.

As of Friday morning, it was unclear what is happening with the company’s stock sale, which would help the bank raise more capital. CNBC reported that attempts to raise capital failed, with the bank now looking instead to sell itself.

What are tech investors saying? 

Prior to California’s decision to shut the bank, the reaction within Silicon Valley ranged the gamut, with Founders Fund, a venture capital firm co-founded by Peter Thiel, advising companies to take their money out of the bank, Bloomberg News reported. 

But others had urged companies and clients to stay put, such as Two Sigma Ventures investor Villi Iltchev, an investor, who wrote on Twitter that Silicon Valley Bank deserved support. 

The question was whether clients would opt to remain with the bank or instead trigger a classic bank run, which are often sparked by fears about an institution’s possible insolvency — fears that then can become self-fulfilling if enough customers pull their money out of the bank. 

“Banks are not like normal companies, and one in crisis can’t wait to run a normal auction process — they depend on the confidence of depositors and even an inkling of doubt can snowball faster than nearly anyone imagines, impairing the value of the franchise,” wrote Wall Street analyst Adam Crisafulli of Vital Knowledge in a report.

How is this impacting Wall Street and other banks? 

Other bank stocks fell Thursday as Silicon Valley Bank shares swooned. Still, analysts said that Silicon Valley Bank’s woes are unlikely to ripple through the banking industry as a whole.

“Current pressures facing SIVB are highly idiosyncratic and should not be viewed as a read-across to other banks,” Morgan Stanley analysts Manan Gosalia and Betsy Graseck wrote in a note Friday, according to CNBC.

Silicon Valley Bank could yet impact a major part of the U.S. economy in that tech companies could lose a valuable source of financing, noted Bill Ackman, CEO of hedge fund Pershing Square, on Twitter. 

“The failure of [Silicon Valley Bank] could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash,” he noted.

On Friday, large, diversified banks such as Bank of America and JPMorgan Chase pulled out of an early slump due to data released Friday by the Labor Department. 

Regional banks, particularly those with heavy exposure to the tech industry, were in decline. Yet it has been a bruising week, with shares of major banks are down this week between 7% and 12%.

With reporting by the Associated Press.

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