Photo by Dovis
 

Financial regulators have closed Silicon Valley Bank (SVB) and taken control over its deposits according to the FDIC.

SVB serviced primarily the venture capital business and wealthy clients in California’s tech enclave called “Silicon Valley.”

SVB, with $209 billion in assets,  is the largest bank failure since the 2008 Financial Crisis when Washington Mutual with $307 billion in assets went belly up.

SVB stock and bondholders have likely been wiped out and SVB depositors are only covered up to $250,000 in FDIC insurance so any funds held at the bank in excess of that amount could be in jeopardy. Those funds include payroll and monies that start-ups need to finance their operations until they go public. And with the IPO market drying up, the funds held at SVB represented the lifeblood for many companies.

SVB was actually the second bank failure this week. It comes on the heels of the collapse of Silvergate bank which suffered huge losses from its Bitcoin and crypto deposits tumbling in value.

On a macro level, SVB’s problems could impact the interconnected network of the U.S. banking system. The SVB fallout has already caused billions in market cap losses to other banks including JP Morgan (JPM), Bank of America (BAC), Charles Schwab (SCHW) and Wells Fargo (WFC). Western regional banks such as First Republic and PacWest have also seen hits to their share prices. Many depositors are pulling money out of bank deposits and heading for the safety of CDs and Treasury bills.

We don’t know at this point whether the hit to the other banks is a sign of trouble to come or an unjustified overreaction.

Famed investor Michael Burry called SVB another “Enron.” Market commentators are fearing contagion to the whole banking sector.

Questions are being raised as to whether other banks have significant financial ties to SVB or have similar balance sheet issues. Other questions include, which  banks have significant exposure to declining crypto assets (like the failed Silvergate Bank)? Which  banks are suffering losses due to forced asset sales (such as low yielding treasury deposits) needed to prop up the balance sheet due to large depositor withdrawals? Which banks have the most commercial real estate exposure?

We learned from the 2008 Financial Crisis that when one bank sneezes, other banks catch a cold. The collapse of Lehman Brothers affected the entire banking system and led to a government bailout of the banks and forced consolidation.  

What we all need now is transparency about the banking system and a government which is competent and prepared to avert another banking crisis.

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