SVB Financial Group Sees Stock Plunge Amid Banking Crisis Fears

SVB Financial Group, the parent company of Silicon Valley Bank, saw its stock plunge 60% on Thursday after revealing a $1.8 billion loss from selling its investments, and announcing it would raise $2.25 billion in capital.^[0] This has sparked fears of a wider banking crisis, and the 10-year Treasury yield has dropped 5 basis points to 3.92%.^[1]

Silicon Valley Bank, one of America’s largest banks with more than $200 billion in deposits, was shuttered by US regulators on Friday and put under control of the US Federal Deposit Insurance Corporation.^[0] This came after deposit outflows and a failed capital raise called into question the future of the tech-focused lender.^[2]

Billionaire hedge fund manager Bill Ackman floated the idea of a government bailout for the bank in a tweet on Thursday, saying, “If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered.”^[3]

On Friday, Janet Yellen, the Secretary of the Treasury, admitted to the difficulties in the industry, stating that there are “a few” banks which the department is carefully monitoring.^[4]

Silicon Valley Bank is deeply embedded in the US startup scene, as the only publicly traded bank focused on Silicon Valley and tech startups, according to its website.^[5] It does business with nearly half of all US venture capital-backed startups, and 44% of US venture-backed tech and health-care companies that went public last year.^[5]

At the end of 2022, Chair Martin Gruenberg of the Federal Deposit Insurance Corporation discussed the emerging interest rate risks in the industry in a speech on March 6. It was stated that the unrealized losses on available-for-sale and held-to-maturity securities across all U.S. banks totaled $620 billion.^[6]

SVB Financial Group (SVB) is the holding company for all business units and groups of Silicon Valley Bank, and provides commercial banking, venture investing, wealth planning and investment banking services.^[7] The Federal Reserve has been increasing rates quickly, and Chair Jerome Powell recently cautioned that the central bank might have to quicken the rate hikes to slow down the economy.^[8] Banks face a straightforward issue: when interest rates rise, the worth of their existing bonds decreases.^[9]

The fear is that the failure of Silicon Valley Bank could destroy a long-term driver of the economy as venture capital-backed companies rely on SVB for loans and holding their operating cash.^[10]

0. “Why the SVB-Triggered Selloff Is a Buying Opportunity in Big Bank Stocks” Barron's, 10 Mar. 2023, https://www.barrons.com/articles/bank-stock-buy-svb-52ee8b9e

1. “Stocks sell-off accelerates, Dow tumbles 400 points as Silicon Valley Bank failure spooks investors: Live updates” CNBC, 10 Mar. 2023, https://www.cnbc.com/2023/03/09/stock-market-today-live-updates.html

2. “Silicon Valley Bank shut down by US banking regulators” Ars Technica, 10 Mar. 2023, https://arstechnica.com/tech-policy/2023/03/silicon-valley-bank-shut-down-by-us-banking-regulators/

3. “Silicon Valley Bank shut down by regulators” Fox Business, 10 Mar. 2023, https://www.foxbusiness.com/markets/silicon-valley-bank-shut-down-regulators-fdic

4. “SVB's meltdown has macro ripples beyond Silicon Valley” Axios, 10 Mar. 2023, https://www.axios.com/2023/03/10/svb-meltdown-ripple-effect

5. “What Triggers a Run on Silicon Valley Bank? SVB Collapse Explained” Bloomberg, 10 Mar. 2023, https://www.bloomberg.com/news/articles/2023-03-10/why-svb-was-hit-by-a-bank-run-and-where-it-could-lead-quicktake

6. “Why Silicon Valley Bank's crisis is rattling America's biggest banks” Yahoo News, 10 Mar. 2023, https://news.yahoo.com/why-silicon-valley-banks-crisis-is-rattling-americas-biggest-banks-121159393.html

7. “Venture capitalists urge startups to withdraw funds from crisis-laden Silicon Valley Bank” CNBC, 10 Mar. 2023, https://www.cnbc.com/2023/03/10/vcs-urge-startups-to-withdraw-funds-from-silicon-valley-bank.html

8. “Yellen says Treasury Department ‘carefully' watching crisis at ‘a few banks'” Yahoo News, 10 Mar. 2023, https://news.yahoo.com/yellen-says-treasury-department-carefully-watching-crisis-at-a-few-banks-153243680.html

9. “Regulators close Silicon Valley Bank after bank fails to raise new capital” Yahoo Money, 10 Mar. 2023, https://money.yahoo.com/regulators-close-silicon-valley-bank-after-bank-fails-to-raise-new-capital-165322606.html

10. “Silicon Valley Bank collapse has echoes of 2008. Here's why things are different this time” CNN, 10 Mar. 2023, https://www.cnn.com/2023/03/10/investing/svb-banking-crisis-what-next/index.html