Shares in Silicon Valley Bank (SVB) plunged 60% on March 9, after the lender admitted to making a $1.8 billion loss on securities it sold to cover deposit withdrawals.
The Federal Reserve Board on Friday announced the results from the review of the supervision and regulation of Silicon Valley Bank, led by Vice Chair for Supervision Michael S. Barr. The review finds four key takeaways on the causes of the bank's failure:
- Silicon Valley Bank's board of directors and management failed to manage their risks;
- Federal Reserve supervisors did not fully appreciate the extent of the vulnerabilities as Silicon Valley Bank grew in size and complexity;
- When supervisors did identify vulnerabilities, they did not take sufficient steps to ensure that Silicon Valley Bank fixed those problems quickly enough; and
- The Board's tailoring approach in response to the Economic Growth, Regulatory Relief, and Consumer Protection Act and a shift in the stance of supervisory policy impeded effective supervision by reducing standards, increasing complexity, and promoting a less assertive supervisory approach.
"Following Silicon Valley Bank's failure, we must strengthen the Federal Reserve's supervision and regulation based on what we have learned," said Vice Chair for Supervision Barr.
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UPDATE SAT. 3/11/23 - Oh, nothing - just the second largest bank failure in U.S. history
UPDATE: SVB extends 2-day plunge to 86% on report it will seek a sale after failing to raise capital
UPDATE FRIDAY 3/10/23: Feds Take Over Silicon Valley Bank in Biggest Bank Failure Since 2007
by Keith Griffith, The Daily Mail, March 9, 2023
Sharp losses in banking stocks led Wall Street's main indexes lower on Thursday, as turmoil at Silicon Valley Bank's parent company triggered investor fears about the stability of the financial sector.
The S&P 500 bank index tumbled more than 6% in its biggest one-day drop in over two years, after SVB Financial Group announced a massive equity raise to cover a $1.8 billion loss on the sale of investments.
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The four largest US banks -- JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup -- saw their share prices plunge between 4% and 6%, wiping $52.3 billion from their collective market capitalizations for the day.
Stocks fell broadly on Wall Street, with the Dow Jones Industrial Average dropping 543 points, or 1.66%. The S&P 500 lost 1.85% and the Nasdaq composite was down 2.05%.
Shares of SVB Financial, which owns Silicon Valley Bank, plunged more than 60% after the company announced a sale of new shares to cover losses on the sale of government bonds.
Silicon Bank's sudden drop in share price is visible in this striking NASDAQ graphic
SVB is battling cash burn due to declining deposits from tech startups struggling with a venture capital funding drought.
The company's assets and deposits had nearly doubled in 2021, and the bank poured much of those funds into US Treasuries and other government bonds.
But as rising interest rates battered the tech startups that the bank primarily serves, declining deposits forced SVB to sell off bond holdings -- which in the meantime had plunged in market value due to the rising rate environment.
The turmoil at SVP sparked a selloff in peers with similar exposure, with San Francisco-headquartered First Republic slumping 16.52% after hitting its lowest level since October 2020.
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Declines at the massive big four banks, while smaller in percentage, dragged markets lower, with the 5.4% loss at JPMorgan weighing more than any other stock on the S&P 500.
'The Silicon Valley raise got everybody nervous about people's capital levels and what deposits are doing. A lot of institutional investors don't feel great about owning certain banks right now,' said R.J. Grant, head of trading at Keefe, Bruyette & Woods in New York.
'It just gets people freaked out because Silicon Valley, historically has been a very strong, well-run bank. If they're having issues right now, people are wondering what about other banks that are lesser quality and that don't have the reputation that Silicon Valley Bank has.'
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