Raphael Stevens

Silicon Valley Bank was taken over by regulators on Friday after massive withdrawals a day earlier created a bank run.
The Federal Deposit Insurance Corporation took control of the bank on Friday, and started an auction process on Saturday night, according to a report from Bloomberg News.
It is still possible that no deal is reached, the report said.

A sign is posted in front of the Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara, California.
Justin Sullivan | Getty Images

Federal regulators are conducting an auction for Silicon Valley Bank, with final bids due Sunday, according to a report from Bloomberg News.
The bank was closed by regulators on Friday after massive withdrawals a day earlier created a bank run. The Federal Deposit Insurance Corporation took control of the bank on Friday, and started an auction process on Saturday night, according to the report.

It is still possible that no deal is reached, the report said.
The collapse of SVB, which was a key player in the technology start-up world, is the largest U.S. bank failure since Washington Mutual in 2008. That bank was then purchased by JPMorgan Chase in a deal that restored the uninsured deposits.
A total or partial acquisition by another bank is one of the options regulators are exploring this weekend. Many investors on Wall Street and Silicon Valley expect an announcement at some point on Sunday to detail the next steps in the SVB crisis.
Read the complete Bloomberg News report here.

WATCH LIVEWATCH IN THE APP More

Treasury Secretary Janet Yellen said Sunday that a bailout of SVB is not on the table but that regulators are exploring other options.
“We are concerned about depositors and are focused on trying to meet their needs,” Yellen said on CBS’ “Face the Nation.”
Many investors on Wall Street and in Silicon Valley are anticipating additional information to be announced at some point on Sunday.

A customer stands outside of a shuttered Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara, California.
Justin Sullivan | Getty Images

Silicon Valley Bank’s customers, along with investors and bankers across the globe, are waiting for an announcement from U.S. regulators about what comes next after the largest bank failure since 2008.
The Federal Deposit Insurance Corporation (FDIC) said Friday that SVB would reopen on Monday morning, under the control of the newly created Deposit Insurance National Bank of Santa Clara. Once that happens, insured depositors with up to $250,000 in their accounts will be able to access their money.

related investing news

But the majority of deposits at SVB were not insured, and it is unclear when those customers will be able to access their money — or whether they will get all of it back. SVB’s role as a key bank for start-ups and other venture-backed companies means that many firms could struggle to meet payroll and other obligations if their money is not quickly recovered.
Many investors on Wall Street and in Silicon Valley are anticipating additional information to be announced at some point on Sunday. Here’s a look at some of the paths forward from here.

Regulators’ options

Treasury Secretary Janet Yellen said Sunday that a bailout of SVB is not on the table but that regulators are exploring other options.
“We are concerned about depositors and are focused on trying to meet their needs,” Yellen said on CBS’ “Face the Nation.”
“This is really a decision for the FDIC, as it decides on what the best course is to resolve this firm,” she added.

U.S. Treasury Secretary Janet Yellen attends a U.S. House Ways and Means Committee hearing on President Joe Biden’s fiscal year 2024 Budget Request on Capitol Hill in Washington, U.S., March 10, 2023. 
Evelyn Hockstein | Reuters

One potential option could be to use the FDIC’s systemic risk exception tool to backstop the uninsured deposits at SVB. Under the Dodd-Frank Act, that move would need to be made in concert with the Treasury Secretary and the Federal Reserve.
Additionally, Bloomberg News reported on Saturday that regulators were weighing creating a special investment vehicle that would backstop uninsured deposits at other banks, which could keep the bank run from spreading in the coming week.
Another possibility is if another bank stepped up to buy part or all of SVB. This happened during the financial crisis, including when JPMorgan Chase absorbed Washington Mutual in 2008. Bloomberg News reported on Sunday that the FDIC is running an auction process for SVB.
Sen. Mark Warner (D-Va.), a member of the Senate Committee on Banking, Housing, and Human Affairs, said on ABC’s “This Week” that the “best outcome is an acquisition of SVB.”
Historically, such acquisitions have often happened over weekends. Once the bank opens on Monday, more depositors could pull their money out, making a sale more difficult.

FDIC asset sales

If there is no buyer for SVB or a new backstop created by regulators, then the FDIC will be selling off SVB’s assets in order to raise cash that would be used to repay uninsured depositors.
SVB had tens of billions of dollars in agency mortgage-backed securities. Those assets are highly liquid, and could in theory be sold quickly with little loss. Regulatory reforms since the 2008 financial crisis have also made mortgage-backed securities much safer than the ones that contributed to financial stability issues back then.
The FDIC said on Friday that uninsured depositors would get a receivership certificate and be paid an advanced dividend payment within a week.
Bloomberg News reported on Saturday night that between 30% and 50% of the uninsured deposits could be returned as soon as Monday.
Other assets held by SVB include loans that are less liquid and may be more difficult to sell. That process could take several weeks or more and end with uninsured deposits being restored at less than 100%.
Some SVB customers, such as businesses, may be able to sell their deposit claims to other financial firms at a discount in order to raise money more quickly than the FDIC process.

Impacts on markets, other banks

Investors have warned that the failure of government regulators to announce a new plan for restoring SVB’s deposits could lead to cascading issues in other small- and mid-sized banks as well as financial markets.
One concerning outcome would be for customers to withdraw money in large amounts from other banks and shift them to the largest U.S. banks that the government has defined as systemically important. Customers withdrew more than $42 billion from SVB on Thursday, and similar moves at other banks could strain those firms even if they have stronger balance sheets.
That fear may appear first in financial markets. The U.S. futures market opens at 6 p.m. ET, and many Asian markets open around that time.
The SVB failure has already had an impact on broader markets. The S&P 500 lost 4.55% last week, while regional bank stocks fell 16% for their worst week since March 2020.

WATCH LIVEWATCH IN THE APP More

Editor’s note (March 12th): Since this story was published, the Federal Reserve and the Treasury have said that all depositors of Silicon Valley Bank will be fully protected.It takes the tide to go out to discover who has been swimming naked—and on March 10th an especially large skinny-dipper was caught in the buff. Silicon Valley Bank (svb), America’s 16th-biggest lender, was taken into receivership by regulators after a failed attempt to raise capital and a run on its deposits. As officials frantically try to contain the distress, panicked investors are on the lookout for more bare flesh.When a bank collapses, worries usually begin with other financial institutions, which can end up exposed either because of connections to the collapsed institution, because they employ similar business models or simply because investor sentiment sours. In a panic, even smaller banks with robust businesses may lose depositors to larger, more closely regulated competitors. svb’s failure to raise capital or sell itself to a larger outfit led to a slump in regional bank stocks, which dropped by nearly a fifth last week. The share price of First Republic Bank, another San Francisco-based lender, tumbled by 34% over the same period. With just over $200bn in assets at the end of 2022, svb falls well short of institutions like Bank of America or Morgan Stanley, which are known as globally systemically important banks and hold assets worth trillions of dollars. svb also had one of the highest proportions of corporate deposits among American banks, which are more flighty than retail ones, and a lot of loans and bonds relative to deposits. The rapid climb in interest rates thus hit the bank hard. Michael Cembalest of JPMorgan Asset Management has noted that svb was in a “world of its own” in terms of duration risk—the threat rising rates posed to its portfolio. Signs of broader distress in the American financial system were limited when markets closed on March 10th. Credit-default swaps on the debt of regional lenders are uncommon or illiquid; those of major institutions were subdued. Five-year swaps on debt issued by Morgan Stanley ticked up from 78 to 96 basis points last week, with higher values meaning a higher cost to insure against default. But the same instruments reached highs of 139 as recently as October, and 1,300 basis points during the worst of the global financial crisis of 2007-09.A second avenue for distress is found among the bank’s corporate depositors. Fully 93% of the bank’s deposits are not covered by federal insurance, which only applies to those below $250,000. Immediate losses will be concentrated in tech firms. svb specialised in lending to asset- and income-light startups. Despite its modest size relative to America’s megabanks, svb boasted that it worked with almost half of American venture-backed tech and life-science firms last year. So long as deposits remain unavailable, urgent outlays like debt repayments and payroll are in jeopardy.A hit to the sector might mean a period of fretful and risk-averse behaviour from tech firms and investors. Roku, a streaming-hardware company, reported that it held $487m at the bank in a regulatory filing on March 10th. Nor are svb’s activities as geographically focused as its name suggests. The make-up of the company’s international depositor base has not been disclosed, but it has a presence in Britain, China, Germany and India, among other countries. On March 10th the Bank of England sought to put the bank’s British arm into an insolvency procedure.Spillovers are already apparent in cryptocurrency markets. The price of usdc, a stablecoin which is meant to be pegged to the value of the dollar, fell to as low as $0.88 on March 11th. Circle, the payments firm which manages usdc, confirmed that around $3.3bn of its $40bn in reserves were deposited with svb. As investors fled usdc, they piled into Tether, another stablecoin pegged to the dollar, which rose to $1.03. The final avenue for distress concerns the assets a failed institution holds. Selling complex structured products into suddenly illiquid markets can cause prices to tumble, weakening the balance-sheets of other financial institutions. That is less likely to be true in svb’s case, since more than 60% of the company’s reported assets are in American government bonds, or cash—both extremely liquid markets. Nevertheless, the slump will focus attention on firms and organisations with similar portfolios. These include some very large financial institutions in Asia. Japanese and Taiwanese insurance firms hold hundreds of billions of dollars in foreign bonds.Three options lie ahead for svb: bail-out, sale or liquidation. Despite panicked demands for help from a handful of Silicon Valley luminaries, the politics of a government rescue look difficult. On March 12th Janet Yellen, America’s treasury secretary, said that officials were concerned about depositors, but that there would be no bail-out for investors and owners. The Dodd-Frank Act, the centrepiece of bank regulation enacted after the global financial crisis, prohibits taxpayer-funded bail-outs for individual firms. According to media reports, regulators began an auction for SVB on the evening of March 11th, which is expected to conclude, with or without a deal, by the evening of March 12th. More

Treasury Secretary Janet Yellen said the U.S. government will not bail out Silicon Valley Bank.
“The reforms that have been put in place means that we’re not going to do that again,” Yellen told CBS’ “Face the Nation.”
Regulators shuttered Silicon Valley Bank and seized its deposits Friday after depositors withdrew more than $42 billion by the end of the day Thursday.

Janet Yellen, US Treasury secretary, speaks during a Financial Stability Oversight Council (FSOC) meeting at the Treasury Department in Washington, DC, US, on Friday, Dec. 16, 2022.
Ting Shen | Bloomberg | Getty Images

After regulators shuttered Silicon Valley Bank and seized its deposits Friday, U.S. Treasury Secretary Janet Yellen said Sunday that she has been working “to address the situation in a timely way,” but that a major government bailout is not on the table.
“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out, and the reforms that have been put in place means that we’re not going to do that again,” Yellen told CBS’ “Face the Nation.” “But we are concerned about depositors and are focused on trying to meet their needs.”

related investing news

SVB’s spectacular implosion began late Wednesday, when it surprised investors with news that it needed to raise $2.25 billion to shore up its balance sheet. Reassurances from SVB’s CEO were not enough to stop the bank run, and depositors withdrew more than $42 billion by the end of the day Thursday, setting the stage for the second-largest bank failure in U.S. history.
The Federal Deposit Insurance Corporation (FDIC) said Friday that it will cover up to $250,000 per depositor and may be able to begin paying those depositors as early as Monday. But the vast majority of SVB’s customers were businesses that had kept far greater uninsured amounts at the bank, which sparked broad concerns about how people will be able to retrieve the rest of their funds.
Yellen said regulators are considering a wide range of options for SVB, including acquisitions.
“This is really a decision for the FDIC, as it decides on what the best course is to resolve this firm,” Yellen said.
Former FDIC Chair Sheila Bair said Sunday that finding a buyer for SVB is “the best outcome.”

“The problem is this was a liquidity failure, it was a bank run, so they didn’t have time to prepare to market the bank,” Bair told NBC’s “Meet the Press.” “They’re having to do that now and playing catch up.”
The fallout of SVB’s collapse could be far-reaching. Startups may be unable to pay employees in the coming days, venture investors may struggle to raise funds, and an already-battered sector could face a deeper malaise.
Bair said the FDIC could help companies with payroll in the case that there’s a systemic risk exception, which would be “an extraordinary procedure.” She said she thinks it is going to be “hard to say that this is systemic in any way.”
Sen. Mark Warner, D-Va., said Sunday that the best outcome would be finding a buyer for SVB before the markets open in Asia. Warner said he is feeling more optimistic that the FDIC will find a solution than he was Saturday afternoon.
 “The shareholders in the bank are going to lose their money, let’s be clear about that. But the depositors can be taken care of,” he told ABC’s “This Week.”

WATCH LIVEWATCH IN THE APP More

More than 300 venture capital firms have signed a letter saying they would be willing to work with Silicon Valley Bank under new ownership provided it is appropriately capitalized.
Regulators shut down SVB on Friday, following a run on the bank on Thursday.
The SVB failure marks the largest in U.S. banking since the 2008 financial crisis, and the second-largest ever.

A sign hangs at Silicon Valley Banks headquarters in Santa Clara, California on March 10, 2023.
Noah Berger | AFP | Getty Images

More than three hundred venture capital firms have signed a joint statement vowing to do business again with Silicon Valley Bank if it is “purchased and appropriately capitalized,” after the financial institution failed on Friday.
Regulators shuttered SVB and seized its deposits on Friday following a run on the bank on Thursday.

related investing news

Preceding the bank’s failure, SVB CEO Greg Becker had announced a sudden need to raise $2.25 billion to shore up the financial institution’s balance sheet overnight on Wednesday. A dramatic wave of deposit withdrawals followed on Thursday.
Shares in the bank plummeted and triggered a trading halt on Friday before the California state regulators took over.
The SVB failure marks the largest in U.S. banking since the 2008 financial crisis and the second-largest ever.
Some venture firms withdrew their own money and instructed their portfolio companies to withdraw their deposits from SVB before the run. Reportedly Founders Fund, USV and Coatue were among those to do so.
Other venture investors lamented that directives from influential firms, even if prudent in a way, contributed to the run on a bank that had been a long-trusted financial partner to tech startups and firms that invest in them for decades.

The Federal Deposit Insurance Corporation (FDIC) will cover up to $250,000 per depositor and may be able to begin paying depositors under that cap as early as Monday. It remains to be seen, however, what portion of the deposits on SVB’s balance sheet will see a full or partial recovery, and whether there is an immediate buyer poised to acquire the bank’s operations.
In 2008, JPMorgan Chase acquired Washington Mutual Bank in a transaction facilitated by the FDIC.
As CNBC has reported, big names in tech and finance have been calling for the federal government to take dramatic actions to protect depositors who were not under the $250,000 insured cap. Their main concern is that a failure to protect deposits over $250,000 could cause a loss of faith in other mid-sized banks.
Venture firms including Accel, Cowboy Ventures, Greylock, Lux Capital, and Sequoia were among the 325 firms who had signed the letter as of Saturday evening in California, expressing a willingness to work again with SVB under new ownership.
The joint statement was shared by many individual venture capitalists on social networks following the bank failure. It said:

Silicon Valley Bank has been a trusted and long-time partner to the venture capital industry and our founders. For forty years, it has been an important platform that played a pivotal role in serving the startup community and supporting the innovation economy in the US. 
The events that unfolded over the past 48 hours have been deeply disappointing and concerning. In the event that SVB were to be purchased and appropriately capitalized, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them.”

Read the statement and the full list of investors expressing support for SVB.

WATCH LIVEWATCH IN THE APP More

Silicon Valley Bank employees received their annual bonuses Friday just hours before regulators seized the failing bank, according to people with knowledge of the payments.
The payments were for work done in 2022 and had been in process days before the bank’s collapse, these people said.
On Friday, SVB CEO Greg Becker addressed workers in a two-minute video in which he said that he no longer made decisions at the 40-year-old bank, according to the sources.

Police officers leave Silicon Valley Banks headquarters in Santa Clara, California on March 10, 2023.
Noah Berger | AFP | Getty Images

Silicon Valley Bank employees received their annual bonuses Friday just hours before regulators seized the failing bank, according to people with knowledge of the payments.
The Santa Clara, California-based bank has historically paid employee bonuses on the second Friday of March, said the people, who declined to be identified speaking about the awards. The payments were for work done in 2022 and had been in process days before the bank’s collapse, the sources said.

related investing news

10 hours ago

This year, bonus day happened to fall on SVB’s final day of independence. The institution, in the throes of a bank run triggered by panicked venture capital investors and startup founders, was seized by the Federal Deposit Insurance Corporation (FDIC) around midday Friday.
On Friday, SVB CEO Greg Becker addressed workers in a two-minute video in which he said that he no longer made decisions at the 40-year-old bank, according to the people.
The size of the payouts couldn’t be determined, but SVB bonuses range from about $12,000 for associates to $140,000 for managing directors, according to Glassdoor.com.
SVB was the highest-paying publicly traded bank in 2018, with employees getting an average of $250,683 for that year, according to Bloomberg.
After its seizure, the FDIC offered SVB employees 45 days of employment, the people said. The bank had 8,528 employees as of December.
A spokesman for the FDIC declined to comment on the bonuses.

WATCH LIVEWATCH IN THE APP More

Voices from tech and finance are increasingly calling for the federal government to push another bank to take over the failed Silicon Valley Bank to protect uninsured deposits.
Their main concern is that a failure to protect deposits over $250,000 could cause a loss of faith in other mid-sized banks.
Some observers called out the irony of the venture capital community calling for government aid after many VCs spurred their portfolio companies to withdraw money after SVB released a surprise statement about its financial situation on Wednesday night.

Employees stand outside of the shuttered Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara, California. 
Justin Sullivan | Getty Images

Big names in Silicon Valley and the finance sector are calling publicly for the federal government to push another bank to assume Silicon Valley Bank’s assets and obligations after the financial institution failed on Friday.
The Federal Deposit Insurance Corporation (FDIC) will cover up to $250,000 per depositor and may be able to begin paying those depositors as early as Monday.

But the vast majority of SVB’s customers were businesses that had more than that on deposit at the bank. As of December, more than 95% of the bank’s deposits were uninsured, according to regulatory filings. Many of these depositors are startups, and many are concerned that they will not be able to make payroll this month, which in turn could spark a wide wave of failures and layoffs in the tech industry.
Investors are concerned that these failures could reduce confidence in the banking sector, particularly mid-sized banks with under $250 billion in deposits. These banks are not deemed “too big to fail” and do not have to undergo regular stress tests or other safety valve measures passed in the wake of the 2008 financial crisis.
Venture capitalist and former tech CEO David Sacks called for the federal government to push another bank to buy SVB’s assets, writing on Twitter, “Where is Powell? Where is Yellen? Stop this crisis NOW. Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before Monday open or there will be contagion and the crisis will spread.”
VC Mark Suster agreed, tweeting, “I suspect this is what they’re working on. I expect statements by Sunday. We’ll see. I sure hope so or Monday will be brutal.”
Investor Bill Ackman made a similar argument in a lengthy tweet, writing, “The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake. By allowing @SVB_Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank. Absent @jpmorgan @citi or @BankofAmerica acquiring SVB before the open on Monday, a prospect I believe to be unlikely, or the gov’t guaranteeing all of SVB’s deposits, the giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’ (SIBs).”

Benchmark partner Eric Vishria wrote, “If SVB depositors aren’t made whole, then corporate boards will have to insist their companies use two or more of the BIG four banks exclusively. Which will crush smaller banks. AND make the too big to fail problem way worse.”
Since its founding almost 40 years ago, SVB had become a centerpiece of finance in the tech industry, particularly for startups and the VCs who invest in them. The firm was known for extending banking services to early-stage startups which would have struggled to get banking services elsewhere before generating stable cash flow. But the firm itself faced cashflow problems this year as startup financing dried up and its own assets were locked down in long-term bonds.
The company surprised investors on Wednesday with news that it needed to raise $2.25 billion to shore up its balance sheet, and that it had sold all its available-for-sale bonds at a $1.8 billion loss. Reassurances from the bank’s executives were not enough to stop a run, and depositors withdrew more than $42 billion by the end of the day Thursday, setting up the second-largest bank failure in U.S. history.
Many in the tech community blamed VCs for spurring the run, as many told their portfolio companies to put their money into safer places after SVB’s Wednesday announcement.
“This was a hysteria-induced bank run caused by VCs,” Ryan Falvey, a fintech investor at Restive Ventures, told CNBC on Friday. “This is going to go down as one of the ultimate cases of an industry cutting its nose off to spite its face.”
Observers are calling out the irony as some VCs with notoriously libertarian free-market attitudes are are now calling for a bailout. For instance, reactions to Sacks’ tweet included statements like “Excuse me, sir. Suddenly the government is the answer?!?” and “We capitalists want socialism!”
Some politicians opposed any bailout, with Rep. Matt Gaetz, R-Fla., tweeting, “If there is an effort to use taxpayer money to bail out Silicon Valley Bank, the American people can count on the fact that I will be there leading the fight against it.”
But financier and former Trump communications director Anthony Scaramucci argued, “It isn’t a political decision to bailout SVB. Don’t make the Lehman mistake. It isn’t about rich or poor of who benefits, it’s about stopping contagion and protecting the system. Make depositors whole or expect lots of tragic unintended consequences.”
— Hugh Son and Ari Levy contributed to this story.

WATCH LIVEWATCH IN THE APP More

Interest rate jitters are meaningfully pushing investors to the shorter end of the yield curve, according to Joanna Gallegos, co-founder of fixed-income ETF issuer BondBloxx.
Gallegos, former head of global ETF strategy for JPMorgan, believes it’s a sound approach.

“It’s an intuitive trade. This is not 2022. This is not even five years ago. Yields are very fundamentally different,” she told Bob Pisani on CNBC’s “ETF Edge” earlier this week.
Gallegos predicted the Federal Reserve will lift rates by another 100 basis points.
“That’s what the market’s estimating … until around July. So, as interest rates are going up, people are a little uncertain about what’s going to happen to bond prices really far out,” she said. “If you go out on the longer side of duration, you’re taking on more price risk.”
However, Main Management CEO Kim Arthur said he finds long-term bonds attractive as part of a barbell strategy. Long-term bonds, he said, are a valuable hedge against a recession.
“It’s a portion of your allocation, but not the entire part, because, as we know, over the long haul equities will significantly outperform fixed income,” he said. “They’ll give you that inflation hedge on top of it.”

Gallegos, when asked whether the 60/40 stock/bond ratio is dead, said it was true a year ago, but not anymore.
“That was … before the Fed increased rates 425 basis points last year, so everything shifted in terms of yields year over year,” she said.
As of Friday’s close, the U.S. 10 Year Treasury was yielding around 3.7% — an 84% surge from one year ago. Meanwhile, the U.S. 6 Month Treasury yield was around 5.14%, which reflects a one-year jump of 589%.

Disclaimer More