Documents show that the CEO of Silicon Valley Bank (SVB) sold $3.6 million in shares of the failed financial institution’s parent company several weeks before its collapse—the biggest U.S. bank failure since 2008 that sent a shudder of anxiety across markets.
An inquiry sent to SVB outside of normal working hours asking whether Becker was aware of the bank’s plans to try and raise capital was not immediately returned.
The announcement sent SVB stock plunging and prompted its lightning-fast unwind. The bank’s shares fell more than 60 percent after the announcement, wiping out $9.4 billion in market value and sparking fears of contagion.
SVB Collapses, FDIC Steps In
SVB failed on March 10, just days after the bank sent the notification signaling its scramble to raise capital after reporting a $1.8 billion loss after being forced to sell Treasury bonds to meet its deposit obligations.California regulators ordered the bank shut and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver.
SVB had approximately $209.0 billion in total assets and roughly $175.4 billion in total deposits as of Dec. 31, according to the FDIC.
“At the time of closing, the amount of deposits in excess of the insurance limits was undetermined,” the FDIC said. “The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.”
As of the end of 2022, SVB had around 89 percent of its $175 billion in deposits that were uninsured.
The FDIC said that it will pay uninsured depositors an advance dividend sometime next week. Uninsured depositors will be given receivership certificates for the uninsured portion of their deposits and, as the FDIC sells SVB’s assets, depositors may receive additional future payments.
SVB is the largest bank to fail since the 2008 financial crisis when Washington Mutual collapsed.
“These banks that have large amounts of institutional uninsured money ... that’s going to be hot money that runs if there’s a sign of trouble,” Bair said.
US Banks ‘Generally in a Strong Financial Condition’
Several days before SVB failed, FDIC Chairman Martin Gruenberg warned bankers gathered in Washington that financial institutions face higher levels of unrealized losses, as the Fed’s rapid interest rate increases have driven down the value of longer-term securities.“The good news about this issue is that banks are generally in a strong financial condition ... On the other hand, unrealized losses weaken a bank’s future ability to meet unexpected liquidity needs,” Gruenberg said.
Several experts said any ripple effects in the rest of the banking sector are likely to be limited. Part of this is because bigger banks have more diverse portfolios and depositors than SVB, which was highly reliant on the startup sector.
“We do not believe there is contagion risk for the rest of the banking sector,” said David Trainer, CEO of New Constructs, an investment research firm.
SVB’s collapse could lead to calls for tougher regulation.