Silicon Valley Bank, lender to world’s biggest startups, collapses

U.S. regulators have shut down Silicon Valley Bank, the California-based lender to some of the biggest names in the tech world, making it the largest bank to collapse since the 2008 global financial crisis.

– A key point to note

The bank ran out of money and lost $1.8 billion in bonds on Thursday as it scrambled to raise money to pay depositors. The rush by investors to pull money away from what seemed a developing crisis dragged the bank’s shares 60% down on Friday.

– Learn more

Authorities quickly appointed the Federal Deposit Insurance Corporation (FDIC) as receiver in a bid to protect nearly $175 billion of depositors’ money, including funds belonging to some of the biggest names in the startup world.

The receiver created a new bank, the National Bank of Santa Clara, to hold the deposits and other assets of the failed one.

The regulator said in a statement that the new entity would be operating by Monday and that cheques issued by the old bank would continue to clear.

Things may not be that easy for customers with deposits over $250,000. That so because the amount is the maximum covered by F.D.I.C. insurance.

Customers with those figures would be given certificates for their uninsured funds. That means they would be paid when the receiver recovers the bank’s funds. The amount paid may not be complete.

United States Secretary of the Treasury Janet Yellen released a statement saying expressing “full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient and regulators have effective tools to address this type of event.”

In response, publicly traded lenders that finance startup companies saw their shares drop on Friday, after the collapse raised concerns over access to funding for some tech firms.

“While we don’t believe that the failure of Silicon Valley Bank is likely to start off an immediate round of credit issues at venture debt BDCs, we do think this is a symptom of the lack of funding coming from the VC universe,” Bloomberg quoted Casey Alexander, an analyst at Compass Point Research & Trading, as saying.

Eventually this will lead to “defaults and failures in the venture debt universe to an extent the industry has never seen.”