SVB Financial Group, the parent company of now-defunct Silicon Valley Bank, is considering bankruptcy as a possible mechanism to sell its other assets, according to a Wednesday report from Reuters.
Silicon Valley Bank, one of the largest financial institutions in the United States, collapsed last week as depositors rushed to withdraw their funds. The firm had discharged assets at a loss from a portfolio containing long-term government and corporate bonds to supply depositors with their funds before the Federal Deposit Insurance Corporation assumed control of the company.
Sources familiar with the matter told Reuters that SVB Financial Group could seek bankruptcy protections while attempting to sell SVB Securities, an investment bank subsidiary, and SVB Capital, an investment management and venture capital subsidiary. Silicon Valley Bank was a commercial banking entity and previously served as the company’s main business unit.
Executives are attempting to find buyers for remaining assets or to center a restructuring deal upon the investment bank and venture capital fund. SVB Financial Group could also find new investors to fund the company, which had not mentioned bankruptcy in a previous announcement about mechanisms to recover from the Silicon Valley Bank collapse.
The FDIC will recruit investment bank Piper Sandler to handle the auction of Silicon Valley Bank, according to another report from Reuters, after the government-backed company failed to sell the firm to another financial institution on Sunday.
The vast majority of deposits at Silicon Valley Bank, which offered services to nearly half of venture-backed technology and healthcare firms in the United States, exceeded the $250,000 threshold insured by the FDIC. Regulators scrambled to guarantee all deposits at Silicon Valley Bank such that the remainder of the financial system, in which roughly half of deposits surpass $250,000, would remain protected.
Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell, and FDIC Chairman Martin Gruenberg said in a joint statement on Sunday that the banking system “remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry.” They vowed that “no losses” associated with the collapse of Silicon Valley Bank would be “borne by the taxpayer.”
The FDIC was also forced to close Signature Bank in New York over the weekend, contributing to widespread concerns about the resiliency of the financial sector. Banks typically invest a large portion of their deposits, meaning they cannot return all of their customers’ assets if they demand the funds in large numbers. The bond portfolio sold by Silicon Valley Bank had lost value amid rising interest rates induced by actions from the Federal Reserve to combat inflation.
President Joe Biden likewise expressed confidence in the banking system on Monday and asserted that the “quick action” of his administration stabilized the financial crisis. “Your deposits will be there when you need them. Small businesses across the country that deposit accounts at these banks can breathe easier knowing they’ll be able to pay their workers and pay their bills,” he said in a statement. “And their hardworking employees can breathe easier as well.”
Entities which hold shares in Silicon Valley Bank will not be protected by the federal government. “They knowingly took a risk and when the risk didn’t pay off, investors lose their money,” Biden added. “That’s how capitalism works.”