The collapse of the tech sector is spreading to the banking industry, as investors gauge the odds of survival at Silicon Valley Bank, a major startup lender.
Trading in the bank’s shares was halted on Friday before the market opened after shares fell double-digits in pre-market trading after plunging more than 60% on Thursday. Other bank stocks also slid in Thursday trading as investor concern over broader risks to the financial industry eased.
The ongoing concerns at the nation’s 16th largest bank, California-based Bank Santa Clara, have prompted stock market investors to dump shares of other bank stocks as well. The shocks at SVB follow news this week that Silvergate, a smaller bank focused largely on the cryptocurrency industry, announced plans to close.
Silicon Valley Bank did not respond to a request for comment.
The drama began earlier this week, when SVB announced that it sold approximately $21 billion of securities and proposed to offer more than $1 billion in shares, all for “general corporate purposes” of fundraising. For.
The move raised eyebrows among investors, who wondered what was the sudden need for the bank to raise so much money. It also raised concerns among depositors, many of whom suddenly wondered whether their money was safe at Silicon Valley Bank — a lender best known for helping finance the explosion of tech companies in the San Francisco Bay Area.
On Thursday, The Information reported that Silicon Valley Bank CEO Greg Baker was asking venture capital clients to “remain calm” as some tech founders began clarifying whether their companies had money at Silicon Valley Bank. Is.
Concerns surrounding SVB stem from its concentration in the tech sector, an industry beset by high interest rates and economic downturns.
Many of the Santa Clara, California-based bank’s depositors are tech companies and venture capital funds, and it doesn’t rely on the mom-and-pop savings accounts like the banks familiar to average American households.
The company’s tech-focused strategy has helped it ride industry-wide growth before and after the pandemic. But excessive hiring during the public health crisis has recently led to widespread layoffs in the tech sector, as the Federal Reserve sharply increased borrowing costs to tame inflation and raised expectations of an economic recession. Are.
“The issue here is, how do problems outside the banking industry affect 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 a problem, the banks will feel it.”
Mayo cautioned that the banking system as a whole has tighter guardrails now than it did 15 years ago, due to policies implemented after the last financial crisis such as regulations imposing stronger capital and liquidity requirements.
The Silicon Valley bank is subject to even more stringent regulations as one of the nation’s top 20 banks by total assets. Like other Federal Deposit Insurance Corporation-member banks, deposits at the bank are insured up to $250,000 per depositor.
