We don't need another bank failure

But we got one. Let's hope it remains limited.  Makes you want to put your money in a mattress.

The Federal Deposit Insurance Corporation announced Friday that they had closed down the California-based Silicon Valley Bank, the 16th-largest federally insured bank in the country.

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Its remaining assets were moved to the newly created Deposit Insurance National Bank of Santa Clara.

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SVB's collapse represents the biggest bank failure since the 2008 financial crisis, which is notable because it appeared to be doing fine until recently.

[...]The emergency effort on Wednesday to save the bank failed, and it was declared dead on Friday.

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The fact that most of SVB's assets were seemingly secure — they were mainly longer-term government bonds — led many investors to feel the bank was secure. [...] The bank suddenly announced Wednesday that it needed to raise over $2.2 billion, sending its stock plunging by more than 60% in a matter of days.

The government securities bought by SVB pay a fixed rate, so when market interest rates were raised, a gap began to grow between how much the securities were worth on the open market and what they were valued on the bank's books.

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The effect of SVB's collapse was immediately felt among other large banks. First Republic Bank, PacWest Bancorp, Signature Bank, and Silvergate Capital Corp all faced significant hits from the fallout.

Though the true impact of the collapse may not be felt for some time, it raises questions as to which banks are misjudging the cost and lifespan of their deposits, as SVB did, and of the yield and duration of their assets.

  Washington Examiner

Maybe the banking industry needs to be overhauled? More highly regulated?

[Banking took a hit from] the fallout across the start-up ecosystem from the failure of Silicon Valley Bank. Entrepreneurs raced to get loans to make payroll because their money was frozen at the bank. Investors doled out and asked for advice in memos and on emergency conference calls. Lines formed outside the bank’s branches. And many in the tech industry were glued to Twitter, where the collapse of a linchpin financial partner played out in real time.

The implosion rattled a start-up industry already on edge. Hurt by rising interest rates and an economic slowdown over the past year, start-up funding — which had been supercharged by low interest rates for years — has shriveled, resulting in mass layoffs at many young companies, cost-cutting and slashed valuations. Investments in U.S. start-ups dropped 31 percent last year to $238 billion.

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The bank, founded in 1983 and based in Santa Clara, Calif., was deeply entangled in the tech ecosystem, providing banking services to nearly half of all venture-backed technology and life-science companies in the United States.

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Silicon Valley Bank was also a bank to more than 2,500 venture capital firms, including Lightspeed, Bain Capital and Insight Partners.

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The bank was a “systemically important financial institution” whose services were “immensely enabling for start-ups,” said Matt Ocko, an investor at the venture capital firm DCVC.

  NYT

That does not sound good. Where does the fallout stop? We've seen bank failure recently, and it was ruinous for millions of people.

On Friday, Roku, the TV streaming company, said in a filing that roughly $487 million of its $1.9 billion in cash was tied up with Silicon Valley Bank. The deposits were largely uninsured, Roku said, and it did not know “to what extent” it would be able to recover them.

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On Friday, the Federal Deposit Insurance Corporation took control of Silicon Valley Bank’s $175 billion in customer deposits. Deposits of up to $250,000 were insured by the regulator. Beyond that, customers have received no information on when they will regain access to their money.

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Non-tech start-ups were also grappling with the fallout. Vox Media, the publisher of New York Magazine and The Verge, has a substantial concentration of cash at Silicon Valley Bank. [...] The company’s credit cards, which Silicon Valley Bank issued, stopped working on Friday.

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Many venture capital firms had also used lines of credit with Silicon Valley Bank to make investments quickly and smoothly, Mr. Ocko of DCVC said. Those lines of credit are now frozen, he said.

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Other start-ups were benefiting from the bank’s collapse. On Friday afternoon, Brex, a provider of financial services to start-ups, unveiled an “emergency bridge line of credit” for new customers migrating from Silicon Valley Bank.

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To stave off any taint from Silicon Valley Bank, some venture funds blasted updates to their backers. Sydecar, a service that facilitates venture capital deals, shared a list of the banks it uses that were not affected. Origin Ventures promised to help companies “create contingency plans around working capital.”

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Josh Butler, the chief executive of CompScience, a workplace safety analytics start-up, said he was unable to get his company’s money out of the bank on Thursday or before the bank’s collapse on Friday.

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[He] said he had been prepared for a big crunch, given the doom and gloom swirling around the industry.

But “did I expect it to be Silicon Valley Bank?” he said. “Never.”

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Mr. Ocko added that he did not foresee systemic collapse among start-ups and tech, but predicted “pain and friction and uncertainty and complexity in the middle of what’s already a painful macro environment for start-ups.”

I expect the Biden administration is all hands on deck right now. And I expect Trump is crowing that he alone can fix it.

UPDATE 09:21 am:  Speaking of regulating...Yes.  That could help.  Jesus, these fuckers.

UPDATE 03/12/2023:

UPDATE 03/14/2023:

And then we got another one.  Signature Bank in New York has folded.

UPDATE 03/16/2023:  The latest Republican talking point on SVB is that it failed because it's "woke".