Two weeks after it collapsed in the face of a run on its deposits, former tech-lending giant Silicon Valley Bank—and the health of big and small technology companies—was in the national headlines once again.
Late in the night on March 26, the Federal Deposit Insurance Corporation announced that First Citizens Bank, the nation’s 30th largest, will acquire the loans and deposits of SVB, which a month ago was the 16th largest US bank, with the blessings—and underwriting—of federal regulators.
On March 28, the Senate Banking Committee began hearings on what went wrong, and who is to blame for the biggest banking collapse in nearly 15 years.
Democrats, led by Sen. Elizabeth Warren in the Senate and Silicon Valley’s Ro Khanna in the House, put the blame for the SVB demise squarely on a 2018 law passed by Congress and signed by then-President Trump to roll back regulations and ease so-called “stress tests” for mid-sized banks like SVB.
Republicans suggested that state regulators in blue-state California and New York had dropped the ball, and some went so far as to suggest that “woke” investment strategies that embraced environmental, social and governance (ESG) considerations were to blame.
Others warned that reckless decisions by venture capitalists like billionaire Peter Thiel, a big SVB depositor, jeopardized Silicon Valley’s financial stability, especially when combined with SVB’s underwriting practices for hundreds of startups.
Warren and some Republicans also renewed questions of the competency of Federal Reserve chair Jerome Powell, who on March 22 guided his board through its ninth lending rate increase in a year, in an effort to reverse inflation.
Meanwhile, tech layoffs continued.
Crunchbase reports that more than 118,000 workers in U.S.-based tech companies (or tech companies with a large U.S. workforce) have been laid off in mass job cuts so far in 2023, which includes the most recent 9,000-person cut at Amazon and 2,200 cut at Indeed. Elon Musk announced new cuts at Twitter, whose payroll is down 75% in six months.
Whether the thousands of laid-off tech workers will find employment and stay in the region is uncertain, but the layoffs portend ripple effects on the regional economy, with slowdowns in housing and retail growth, commercial real estate leases and development projects.
The timetable has already been stretched for the massive Google office campus and related housing/commercial developments in downtown San Jose, and it remains to be seen whether high interest rates and an economic downtown will impact plans for the giant Related Santa Clara project set to begin around Levi’s Stadium in Santa Clara this summer.
The deal for the viable remnants of Silicon Valley Bank, which became Silicon Valley Bridge Bank after the FDIC seized it, includes the purchase of about $72 billion in loans, at a discount of $16.5 billion, and the transfer of all the bank’s deposits, worth $56 billion. But roughly $90 billion in Silicon Valley Bank’s securities and other assets were not included in the sale, and remain in the FDIC’s control.
Silicon Valley Bank had roughly $175 billion in deposits before its collapse, which means panicked depositors pulled nearly $120 billion out of the bank in a week in its final days before regulators shut it down. First Citizens will be working to maintain and grow relationships and retrieve some of this money from SVB’s current and former technology-heavy client base.