Crisis at Silicon Valley Bank accelerates as tech sector worries spill onto Wall Street

Tech sector fallout is spilling into the banking industry, as investors gauge the odds of survival for Silicon Valley Bank, a major startup lender.

Trading of the bank’s shares was halted Friday before markets opened, after the stock fell by double-digits in pre-market trading on the heels of a more than 60% decline Thursday. Other bank stocks slipped in Thursday trading as well, underscoring investor worries over broader risks to the financial industry.

Concerns over a run at the Santa Clara, California-based bank, the 16th largest bank in the country, have led stock market investors to dump shares of other bank stocks as well. Jitters at SVB follow the news this week that Silvergate, a much smaller bank largely focused on the cryptocurrency industry, announced plans to shut down.

Silicon Valley Bank didn’t respond to a request for comment.

The drama started earlier this week, when SVB announced that it sold about $21 billion of securities and proposed to offer over $1 billion in shares, all to fundraise for “general corporate purposes.”

The move raised eyebrows among investors, who pondered why the bank would need to raise so much money abruptly. It also raised concerns among depositors, many of whom suddenly wondered whether their money was safe at Silicon Valley Bank — a lender known for helping to finance the explosion of tech companies in the San Francisco Bay Area.

On Thursday, The Information reported that Silicon Valley Bank CEO Greg Becker was asking venture capital clients to “stay calm” as some tech founders began clarifying if their companies did have money at Silicon Valley Bank.

The concerns around SVB are linked to its concentration in the tech sector, an industry walloped by high interest rates and an economic slowdown.

Many of the Santa Clara, California-based bank’s depositors are tech companies and venture capital funds, and it doesn’t rely on mom-and-pop savings accounts like banks familiar to the average U.S. household.

The company’s tech-focused strategy has helped it ride the industry’s massive growth leading up to and through the pandemic. But overzealous hiring during the public health crisis has more recently led the tech sector to institute sweeping layoffs, as the Federal Reserve sharply increased borrowing costs to cool inflation and has raised expectations of an economic slowdown.

Dec. 10, 202203:23

“The issue here is what is the domino effect of problems outside the banking industry on the banks themselves?” said Mike Mayo, a bank analyst at Wells Fargo Securities. “Banks are still the heart of the economy, and if there’s issues, then banks are going to feel it.”

Mayo cautioned that the banking system overall has more robust guardrails now than it did 15 years ago, due to policies put in place after the last financial crisis such as regulations imposing stronger capital and liquidity requirements.

Silicon Valley Bank is subject to even more stringent regulations as one of the country’s top 20 banks by total assets. Like other Federal Deposit Insurance Corporation-member banks, deposits at the bank are also insured up to $250,000 per depositor.