The US government rushed to seize the assets of Silicon Valley Bank on Friday. After it experienced a run on the bank, the largest failure of a financial institution since washington mutual during the height of the financial crisis more than a decade ago.
The bank had USD209 billion in total assets at the time of failure, according to the FDIC. Silicon Valley Bank still appeared stable this year, but on Thursday it announced plans to raise up to USD1,75 billion in order to strengthen its capital position. That sent investors scurrying and shares plunged 60 percent. They rocketed lower again Friday, before the open of the nasdaq where it is traded.
Silicon Valley's connections to the tech sector became a liability rapidly. Technology stocks have been hit hard in the past 18 months after a growth surge during the pandemic and layoffs have spread throughout the industry.
At the same time, the bank was hit hard by the federal reserve's fight against inflation and an aggressive series of interest rate hikes to cool the economy. When depositors grow anxious and begin withdrawing their money, banks sometimes have to sell those bonds before they mature to cover that exodus.
That is exactly what happened to Silicon Valley Bank, which had to sell USD21 billion in highly liquid assets to cover the exodus of deposits. It took a 1,8 billion dollar loss on that sale.