Latest Banking Crisis News: Failures Of Silicon Valley Bank And Signature Bank

In the past few days, the banking system has been shaken by notable bank failures and sharp falls in bank stock prices. These events come after two years without a single bank failure – but that all changed with the abrupt shutdown of the Silicon Valley Bank (SVB) on Friday, March 10th.

SVB was previously one of the largest banks serving the tech startup industry – and the 16th largest bank in the US overall. After the bank was forced to sell bonds at a loss, the share price plummeted and depositors panicked, leading to a classic bank run. California regulators then stepped in, shutting down the bank and placing it under the receivership of the Federal Deposit Insurance Corp. (FDIC), which is responsible for protecting deposits.

This is the second largest bank collapse in US history.

Several other banks are facing turmoil and uncertainty, leading to a potential banking crisis. At least one other bank — New York-based Signature Bank — closed its doors following the SVB collapse, marking the third-largest bank failure in US history.

The FDIC has stepped in to temporarily take over the closed banks and ensure that both insured and uninsured deposits are restored. Likewise, the Fed is taking steps to prevent further damage to the banking system and to boost consumer confidence, who are nervous about the pressure on other banks.

This is an evolving situation affecting the banking system as a whole, with the potential to trigger a US banking crisis. Here’s the breakdown of the latest news.

Latest updates on bank failure fallout

The government opens an investigation into the failure of the Silicon Valley bank

After SVB’s collapse, both the US Department of Justice and the Securities and Exchange Commission are conducting separate investigations into the failure and stock sales by the bank’s Treasury officials the previous day, according to a Wall Street Journal report.

The report notes that investigations may not lead to charges and is not uncommon following a major loss.

One of the focal points of the investigation is the large stock sale before the collapse of the bank. SVB chief executive Greg Becker sold $3.6 million in company stock just under two weeks before the failure, Bloomberg reports. This was one of several insider sales since early 2023.

Several regional banks are seeing shares fall before halting trading

A number of regional banks experienced a volatile run in stock markets following the collapse of the SVB.

Western Alliance Bank, based in Phoenix, Arizona, faced a sharp drop in the stock market on Monday morning, March 13th. The bank’s CEO, Kenneth Vecchione, issued a statement assuring that the bank can meet all of its customers’ financing needs. He also claimed that the outflows of funds had been moderate.

Meanwhile, Comerica, PacWest Bancorp and East West Bancorp lost between 17 and 28 percent on March 13. Zions Bancorporation, another regional bank, lost 26 percent.

Trading for a number of banking stocks, including First Republic Bank, Western Alliance Bank and PacWest Bancorp, was briefly halted Monday morning.

First Republic Bank leads falling bank stocks, CEO reiterates stability

Shares in First Republic Bank fell more than 60 percent on Monday, March 13.

“First Republic’s capital and liquidity positions are very strong and its capital remains well above the regulatory threshold for well-capitalized banks,” said Jim Herbert, CEO and President of First Republic Bank, in a news release on Sunday, March 12 . “As we have done since 1985, we operate at all times with an emphasis on safety and stability while maintaining a well-diversified deposit base.”

The San Francisco-based bank is under scrutiny after recent liquidity concerns were raised over the same financial woes as SVB. First Republic received additional liquidity from the Federal Reserve and JPMorgan Chase.

Signature Bank becomes the third largest bank to fail

Signature Bank, a New York-based commercial bank, was shut down by New York regulators on Sunday March 12 because the bank poses a systemic risk to the stability of the financial system. Signature Bank is the third largest bank failure in US history, followed by SVB in second place and Washington Mutual, which failed in 2008, in first place.

The sudden closure of Signature Bank is at least partly due to the collapse of SVB. The New York-based bank was previously one of the main banks in the cryptocurrency industry, already reeling from the liquidation of Silvergate, previously the largest crypto bank.

With the crypto market already faltering and investors withdrawing funds since FTX collapsed in late 2022, the closure of SVB sparked a bank run on Signature Bank, which held a significant amount of large uninsured deposits. This prompted regulators to step in and try to avert a major financial crisis.

Signature bank depositors receive the same treatment as SVB depositors: The FDIC said it will attempt to make all depositors complete, whether their funds were all insured or not.

Silicon Valley Bank collapses after two years without a bankruptcy

Silicon Valley Bank (SVB) is the first bank to go bankrupt since late 2020. Big companies that had funds at SVB — and that were affected by the bank’s collapse — include Vox Media, Roku, Etsy and Roblox.

News of the bank’s collapse came suddenly, but there were a number of forces that led to its demise.

Over the past year, the Federal Reserve has raised interest rates to combat high inflation. Higher interest rates mean higher borrowing costs, which weighs on companies, particularly venture capital startups that need funding – and venture capital startups have been some of SVB’s main customers. At the same time, higher interest rates reduced the value of the bonds in which banks like the SVB invested their customers’ deposits when interest rates were lower.

On March 8, two days before the collapse, SVB sold a $21 billion bond portfolio at a $1.8 billion loss. The bank also announced that it would sell $2.25 billion in common stock and escrow stock to compensate for its customers’ withdrawals, but the bank was unable to complete that stock offering before it closed. By the end of March 9, the bank’s stock had fallen 60 percent for a drastic loss of over $80 billion in bank stocks.

This prompted depositors to withdraw their funds.

On March 13, the FDIC announced that it had transferred all insured and uninsured deposits to Silicon Valley Bank, NA, a newly formed bridge bank. It has been reported that customers will be able to access their funds via debit cards, ATMs and writing checks in the same way as before.

The Fed released a statement ensuring no taxpayer will suffer any losses from the bank’s shutdown. While depositors are protected, the Fed states that “shareholders and certain unsecured debt holders will not be protected.”

The Fed responds to ongoing bank failures and assures that deposits are safe

According to the joint statement by Treasury Secretary Janet Yellen, Federal Reserve Board Chairman Jerome Powell and FDIC Chairman Martin Gruenberg, federal officials reassured taxpayers that they would not incur losses as a result of the recent bank closures.

One way the Federal Reserve is safeguarding deposits and strengthening the banking system is by making additional funds available to banks through a newly created Bank Term Funding Program (BTFP). The Fed said it would create this contingency program, which would provide credit as an additional source of liquidity to make institutions less likely to sell high-quality securities (like Treasuries) quickly to meet withdrawal needs.

Commenting on the recent bank failures and the Fed’s response on March 13, President Joe Biden noted that he had directed the agency to take swift action to protect the interests of “jobs, some small businesses and the banking system as a whole.”

“Americans can rest assured that our banking system is secure,” President Biden said. “Your deposits are safe.”

However, the President warned investors would not be protected: “They took a risk and if the risk didn’t pay off, investors lose their money.”

The President said he plans to ask Congress to tighten banking regulation to prevent further bank failures.

Some banking regulations introduced after the 2008 financial crisis, including the Dodd-Frank Act, were rolled back during the Trump administration. Biden criticized this rollback in his speech, suggesting that more regulation of banks was needed to keep the banking system safe.

The Fed says its response to the shutdowns of Silicon Valley Bank and Signature Bank will fully protect all deposits, regardless of whether they are insured. Still, it’s a good idea to check your insurance coverage as the banking system stands up to rocky conditions. The FDIC guarantees that up to $250,000 is protected per depositor, per account holder type, and per FDIC-insured bank.