US regulators shut down Silicon Valley Bank on Friday in a spectacular move that sent global banking shares into turmoil, as markets fretted over possible contagion from the biggest banking failure since the 2008 financial crisis.
US authorities swooped in and seized the assets of SVB bank, a key lender to US startups since the 1980s, after a run on deposits made it no longer tenable for the medium-sized lender to stay afloat on its own.
Headquartered in the shadow of the world’s biggest tech companies, SVB’s travails have raised fears that more banks may face doom as the fallout from high inflation and hiked interest rates squeezes weaker lenders.
A day after the four biggest US banks lost a whopping $52 billion in market value following signs of trouble at SVB, European banking giants were similarly mired in the red, with Deutsche Bank down 10 percent at one stage.
On Wall Street on Friday, shares in heavyweights Bank of America, Wells Fargo and Citibank seesawed, with US Treasury Secretary Janet Yellen expressing “concern” about the situation and saying she was “monitoring” a few banks.
This was swiftly followed by news that the California Department of Financial Protection and Innovation (DFPI) closed SVB and appointed the Washington-based Federal Deposit Insurance Corporation to take over the funds.
The crisis measure protects customers with up to $250,000 in deposits and crucially buys time to find a potential buyer of whatever remains of the embattled Silicon Valley lender.
CNBC reported Friday that SVB was in talks with potential buyers after attempts to ride out the crisis on its own failed.
“The debate today is whether SVB issues are SVB’s issues or the start of a bigger issue for the banking sector,” said a note from Patrick O’Hare of Briefing.com.
“There seems to be an allowance in the stock market for it being more of a company-specific problem or at least not a debilitating systemic issue.”
Before the closure, trading in SVB itself was halted Friday after the bank saw more than 60 percent of its value wiped out, following the disclosure it had lost $1.8 billion in securities sales in an effort to raise funds.
Investors fear that other banks could face similar losses as they look to raise cash amid ever rising interest rates with central banks moving aggressively to tame decades-high inflation.
“We’ll have to see how this story develops but something always breaks hard during or after a Fed hiking cycle,” Deutsche Bank analysts said in a note.
“Is this another mini wobble on this front or the start of something bigger? Tough to tell, but I would be stunned if there weren’t many more casualties of this boom-and-bust cycle.”
