US REGULATORS PULLED the plug on Silicon Valley Bank on Friday in a spectacular move that sent global banking shares sputtering, as markets fretted over possible contagion from America’s biggest banking failure since the 2008 financial crisis.
The Ireland Strategic Investment Fund (ISIF) said the around $100m it had invested in five funds managed by SVB Capital, a subsidiary of the Silicon Valley Bank (SVB) Financial Group, would not be impacted by the panic that had started on Thursday with a massive drop in share price and a subsequent share sale.
“This means ISIF does not expect any impact on these investments arising from SVB Financial Group’s announcement that it will issue additional shares in the group,” a spokesperson for ISIF told RTÉ.
“The distributions received by ISIF from these investments since 2012 exceed the amount currently invested.”
However, US authorities went on to close the California-based Silicon Valley Bank (SVB) later on Friday with the US deposit guarantee agency, the Federal Deposit Insurance Corporation, taking control.
The crisis measure protects customers with up to $250,000 in deposits and crucially buys time to find a potential buyer of whatever remains of the embattled Silicon Valley lender.
The bank is expected to reopen on Monday under a new name.
Before the closure, trading in SVB itself was halted Friday after the bank saw more than 60% of its value wiped out, following the disclosure it had lost $1.8 billion in securities sales in an effort to raise funds.
US authorities swooped in and seized the assets of SVB, a key lender to US startups since the 1980s, after a run on deposits made it no longer tenable for the medium-sized bank to stay afloat on its own.
Little known to the general public, SVB specialised in financing start-ups and had become the 16th largest US bank by assets: at the end of 2022, it had $209 billion in assets and approximately $175.4 billion in deposits.
Its demise represents not only the largest bank failure since Washington Mutual in 2008, but also the second largest failure ever for a retail bank in the United States.
In response to the sudden collapse, Treasury Secretary Janet Yellen convened an emergency meeting of top US banking regulators.
“Secretary Yellen expressed 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,” a Treasury statement said.
Based in the shadow of the world’s biggest tech companies, SVB’s travails have raised fears that more banks may face doom as the fallout from high inflation and hiked interest rates squeezes weaker lenders.
In front of the SVB headquarters on a rainy day in Santa Clara, California, nervous customers spoke in small groups wondering how they could withdraw their money as news spread of the government seizure.
One customer who spoke on condition of anonymity, said he used the bank for payroll at his startup.
“It’s not a good situation. A lot of really top tier (venture capital firms) have very high amounts of exposure here,” he said, adding that he was worried for his employees.
The problems of the failed SVB bank were “specific to the firm” and had no “implications for other banks operating in the UK,” the British Treasury said today.
The UK banking system “remains strong and resilient”, the finance ministry said in a press release, adding the government was meeting with representatives of the technology sector to address their concerns.
“We’ll have to see how this story develops but something always breaks hard during or after a Fed hiking cycle,” Deutsche Bank analysts said in a note.
“Is this another mini wobble on this front or the start of something bigger? Tough to tell, but I would be stunned if there weren’t many more casualties of this boom-and-bust cycle.”
Finance minister Jeremy Hunt spoke to the governor of the Bank of England this morning regarding Silicon Valley Bank UK, the US bank’s UK subsidiary, to ensure that its failure “is managed smoothly, and that any disruption is minimised”.
Treasury officials have been speaking to firms affected and held a roundtable with industry representatives “to discuss the situation and the worries they face”, added the statement.
“The government recognises that tech sector companies are often not cashflow positive as they grow, and that they rely on cash deposits to cover their day-to-day costs,” it said.
The Bank of England said it intended to pursue insolvency with regards to the bank’s British subsidiary.
“It was looking inevitable that the dramatic loss of confidence in SVB would also sweep its UK arm into insolvency,” said Susannah Streeter of financial firm Hargreaves Lansdown.
“The run on the US bank spooked customers banking with the British subsidiary, despite protestations that it was ring-fenced from its parent,” she added.
Sky News reported that the Bank of London, which launched just two years ago, is among those mulling a bid for the bank’s British arm.
To embed this post, copy the code below on your site
have your say