The latest on the Silicon Valley Bank collapse

Despite US regulators' intervention, Asian stocks fell broadly on Tuesday, dragged down by banking shares, as fears over the fallout of Silicon Valley Bank’s collapse gripped the market despite US government efforts to stabilize the financial system.

Banks were the hardest hit sector across the region.

Other Asia Pacific banking shares also fell.

Garry Tan, prominent tech investor and CEO of tech startup accelerator Y Combinator, described Silicon Valley's collapse as an “extinction-level event for startups” that would “set startups and innovation back by 10 years or more.”

As one of the tech industry's collapsed, startups raced to line up loans from venture funds and fintech firms to make payroll. Venture-backed retailers hosted last-minute sales to boost their cash reserves. And Tan authored an “urgent” petition calling for Treasury Secretary Janet Yellen and others to offer “relief."

Then, the industry was relieved when the US government intervened late Sunday to guarantee that all customers of the failed bank would be made whole.

But even as the tech industry enjoys a respite from a fearful weekend, unknowns remain. It’s unclear how the aftershocks of the bank’s collapse will add to the startup industry’s growing challenges accessing capital. SVB’s collapse also risks changing how the world, and prospective recruits, think of Silicon Valley.

For years, the term itself conjured an image of an enclave of bright, contrarian, libertarian engineers and thinkers who could see around corners and make big bets on the future. Now, that same industry is relying on the federal government to survive after failing to see the risk, or worse, contributing to it through a shared hysteria.

Even before the bank’s collapse, the startup industry was in a tough moment. Venture capital funding had dwindled amid rising interest rates and broader macroeconomic uncertainty; tech companies were cutting staff and ambitious projects; and some of the biggest private companies were reportedly slashing their valuations.

The instability at a top tech lender, and the lingering questions about its impact on other regional banks and the broader financial system, risk making it even harder for money-losing startups to access the capital they need to survive.

More immediately, there’s uncertainty around how long it will take for companies to get their money out of the bank.

As of Monday, Kalb said the money in his Silicon Valley Bank account has not been transferred yet to the new JPMorgan Chase account he set up for Shelf Engine on Thursday. “I’ve been obsessively checking my email,” he said. “Hopefully the money will be able to be transferred shortly.”

Co-founder Ben Kaufman told CNN that his venture-backed toy store spent the weekend trying to “fight for survival,” including holding a last-minute 40% off sale, using the code “BANKRUN,” to raise capital over the weekend.

How and where he stores his money is “going to have to be a consideration moving forward,” he told CNN, adding, “I don’t want to do this again.”

Silicon Valley Bank collapsed with astounding speed on Friday. And while the US federal government stepped in to guarantee customer deposits, its downfall continues to reverberate across global financial markets — as seen in the subsequent shutdown of Signature Bank — and investors are on edge about whether its demise could spark a broader banking meltdown.

Here’s what you need to know about the biggest US bank failure since the global financial crisis in 2008:

Why did it collapse?: The root of its demise goes back several years. Like many other banks, SVB ploughed billions into US government bonds during the era of near-zero interest rates. What seemed like a safe bet quickly came unstuck, as the Federal Reserve hiked interest rates aggressively to tame inflation.

When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio. The portfolio was yielding an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%, Reuters reported.

At the same time, the Fed’s hiking spree sent borrowing costs higher, meaning tech startups had to channel more cash towards repaying debt. At the same time, they were struggling to raise new venture capital funding. That forced companies to draw down on deposits held by SVB to fund their operations and growth.

Then the bank run: When SVB announced that it had sold a bunch of securities at a loss and would sell $2.25 billion in new shares to plug the hole in its finances, customers panicked and withdrew their money in large numbers.

The bank’s stock plummeted 60% Thursday and dragged other bank shares down with it. By Friday morning, trading in SVB shares was halted and it had abandoned efforts to raise capital or find a buyer. California regulators intervened, shutting the bank down and placing it in receivership under the Federal Deposit Insurance Corporation, which typically means liquidating the bank’s assets to pay back depositors and creditors.

In aiming to prevent further bank runs and help companies pay staff and fund operations, US regulators said Sunday that they would guarantee all SVB customers’ deposits. The intervention does not amount to a 2008-style bailout, however, which means investors in the company’s stock and bonds will not be protected.

Will this trigger a banking crisis? There are already some signs of stress at other banks, and authorities in the US and across Europe are watching closely. Trading in First Republic Bank (FRC) and PacWest Bancorp (PACW) was temporarily halted Monday after the shares plunged 65% and 52% respectively. Charles Schwab (SCHW) stock was down 7% at 11.30 a.m. ET Monday.

In Europe, the benchmark Stoxx Europe 600 Banks index, which tracks 42 big EU and UK banks, fell 5.6% in morning trade — notching its biggest fall since last March. Shares in embattled Swiss banking giant Credit Suisse were down 9%.

SVB isn’t the only financial institution whose investments into government bonds and other assets have fallen dramatically in value. At the end of 2022, US banks were sitting on $620 billion in unrealized losses — assets that have decreased in price but haven’t been sold yet, according to the FDIC.

Another key headline: HSBC stepped in Monday to buy SVB UK for £1 ($1.2), securing the deposits of thousands of British tech companies that hold money at the lender. Had a buyer not been found, SVB UK would have been placed into insolvency by the Bank of England, leaving customers with only deposits worth up to £85,000 ($100,000) — or £170,000 ($200,000) for joint accounts — guaranteed.

Is my money safe? How secure is the banking system? CNN answers your most pressing questions in the aftermath of Silicon Valley Bank’s stunning collapse:

Do I have to worry about cash I stored in my bank?

If you have less than $250,000 in your account, then you almost certainly have nothing to worry about. That’s because the US government insures the first $250,000 in eligible accounts.

Many SVB customers had much more than $250,000 deposited, and now that they can’t get their money, some companies are struggling to make payroll.

Should I pull my money out of my bank?

It doesn’t make sense to take all your money out of a bank, Jay Hatfield, CEO at Infrastructure Capital Advisors and portfolio manager of the InfraCap Equity Income ETF, said. But make sure your bank is insured by the FDIC, which most large banks are.

Hatfield’s advice was to split up your money between banks, so each one had a maximum of $250,000. “Why not? If you have a million, why not have four accounts and have them insured?"

But if I don’t run to pull my money out of the bank now, won’t it disappear?

Everyday consumers, on the whole, are unlikely to be affected. But the collapse is a good reminder to be aware of where your money is held, and not to have it all in one place.

The FDIC has different resources on its site. The “bank suite” tool offers a list of FDIC-insured banking institutions and the Electronic Deposit Insurance Estimator calculates the insurance coverage of different deposit accounts at banks.

Is this 2008 all over again?

The banking sector should be, theoretically, more stable due to the regulatory reforms put in place after the crisis in 2008.

The government’s actions this past weekend also tried to prevent the next SVB from happening, further stabilizing the sector after a chaotic week. The Fed also said it will offer bank loans for up to a year in exchange for US Treasury bonds and mortgage-backed securities that lost value. The Fed will honor the debt’s original value for the banks that take the loans.

The Treasury will also provide $25 billion in credit protection to ensure against banks’ losses, which should help banks easily access cash when they’re in need.

“The Fed ring-fenced the SVB disaster and averted a crisis of epic proportions for the banking sector,” said Wedbush Securities’ Dan Ives.

Can the US federal government contain the panic?

SVB was among the top 20 American commercial banks, with $209 billion in total assets at the end of last year, provided financing for almost half of US venture-backed technology and health care companies. Every bank has losses on their securities and uninsured deposits. US banks were sitting on $620 billion in unrealized losses (assets that have decreased in price but haven’t been sold yet) at the end of 2022, according to the FDIC.

The government took steps over the weekend to quell fears of SVB turning into a full-blown crisis. So there’s no need to panic, say analysts.

Most large US banks are in good financial condition and won’t find themselves in a situation where they’re forced to realize bond losses, said DIC Chairman Martin Gruenberg.

CNN’s David Goldman, Nicole Goodkind and Allison Morrow contributed to this report.

House Republicans are still hashing out a strategy to deal with the Silicon Valley Bank collapse, and did not announce any plans for bills or hearings during a Monday night conference call, according to multiple sources on the call. 

The House is out this week, but the House Financial Services Committee is expected to take the lead on the GOP’s legislative response. 

Instead, Republican leaders, as well as Financial Services Chairman Patrick McHenry and Rep. French Hill, used Monday night’s conference call to provide a detailed briefing to members on their view of “exactly what happened and why,” per one of the sources. 

They blamed failures in bank management and state examination for the bank’s collapse, saying SVB was too concentrated in one industry, and also at one point blamed the Biden administration’s fiscal policies and high interest rates. 

But they also urged members not get too partisan in their responses and wanted to ensure that everyone remains level headed, according to one of the sources. They also told members that the market reaction today was better than anticipated. 

Moody’s Investors Service placed six other US banks on review for potential downgrades late Monday, following last week’s collapse of Silicon Valley Bank. 

The credit ratings firm also downgraded Signature Bank deep into junk territory following that bank’s failure.

Moody’s warned it could similarly downgrade First Republic Bank, Zions, Western Alliance, Comerica, UMB Financial and Intrust Financial. The firm cited the “extremely volatile funding conditions for some US banks exposed to the risk of uninsured deposit outflows.”

The move comes after shares of regional banks got clobbered on Monday even after the federal government stepped in with a massive intervention designed to prevent depositors and prevent further bank runs. Regional bank shares are rebounding in premarket trading on Tuesday.

For San Francisco-based First Republic, Moody’s pointed to the bank’s “high reliance on more confidence sensitive uninsured deposit funding,” high unrealized losses in its bond holdings and a “low level of capitalization” relative to its peers.

First Republic has a high amount of deposits above the FDIC’s insurance limit, Moody’s said, noting this makes the bank’s funding profile “more sensitive to rapid and large withdrawals from deposits.” 

After plunging 62% on Monday, First Republic shares are climbing 24% in premarket trading on Tuesday.

Federal Deposit Insurance Corp. officials declined a bid to purchase assets from the failed Silicon Valley Bank during an auction that took place this weekend, but that doesn’t mean their efforts to secure a sale of the bank’s assets are finished, sources familiar with the matter say. 

Officials who briefed Senate Republicans on the dramatic government actions taken in response to the failure of Silicon Valley Bank and Signature Bank said they were weighing plans for a second auction in the future, the sources said.

The timeline for a second auction was not clear, but the officials noted that the government action to backstop uninsured deposits, as well as the creation of a Federal Reserve-operated emergency lending facility for small and mid-sized banks, created new conditions that may make lenders more willing to submit bids to purchase the failed bank’s assets, the sources said. 

Biden administration officials worked furiously throughout the weekend in an effort to find a buyer for the bank’s assets before ultimately deciding to launch the dual-pronged emergency actions. 

The FDIC solicited bids from other banks to potentially purchase Silicon Valley Bank. But one senior Treasury official noted on Sunday that "things moved very quickly" and that the decision was made to "move early" and trigger the systemic risk exception — a designation that provides more leeway to immediately advance funds to those holding deposits above the current $250,000 threshold covered by FDIC. 

The official noted it would have been "pretty difficult" for a potential buyer to have gone through SVB's books, agreed to purchase the assets and been in a position to open for business on Monday. 

Instead, the FDIC transferred all of the bank’s deposits and assets to a government-operated “bridge bank” that opened and resumed normal banking hours and business operations.  

The blame game is on for who caused Silicon Valley Bank’s collapse, and the tech sector is pointing the finger at SVB CEO Greg Becker for allowing his company to go down in history as the second-biggest US banking failure on record.

One Silicon Valley Bank employee, who requested anonymity to speak candidly, was dumbfounded by how Becker publicly acknowledged the extent of the bank’s financial troubles before privately lining up the necessary financial support to ride out the storm.

This set the stage for the panic that ensued as customers scrambled to pull their money.

What happened: Becker and his leadership team revealed last Wednesday night a hope (but no firm commitment) to raise $2.25 billion in capital as well as $21 billion in asset sales that sparked a $1.8 billion loss.

That news set off a wave of fear across Silicon Valley, where the bank serves as a key lender to tech startups. Many of them panicked, yanking $42 billion last Thursday alone when Silicon Valley Bank’s stock crashed by 60%, according to filings by California regulators.

By the close of business that day, Silicon Valley Bank had a negative cash balance of about $958 million.

The Silicon Valley Bank insider said the mismanagement of the bank’s balance sheet heading into last week was “stupidity” and questioned the strategy of the CEO and CFO.

Still, the employee, who is a Wall Street veteran, emphasized his belief that the downfall of Silicon Valley Bank was brought on by errors and “naivety,” not outright wrongdoing.