The parent company of the former Silicon Valley Bank, SVB Financial Group, is reportedly considering filing for bankruptcy as a potential way to dispose of its other assets, as per Reuters' Wednesday report.
Last week saw Silicon Valley Bank, one of the most significant financial establishments in the U.S., fall apart as customers hurried to take out their money. Before the Federal Deposit Insurance Corporation took charge of the company, the firm had sold off assets at a loss from a portfolio consisting of long-term government and corporate bonds, in order to provide depositors with their money.
Those knowledgeable about the situation informed Reuters that SVB Financial Group may look to secure bankruptcy protection while attempting to put SVB Securities, an investment banking arm, and SVB Capital, an investment management and venture capital arm, up for sale. Silicon Valley Bank was a commercial banking entity, which was previously the main branch of the organization.
Executives are trying to locate purchasers for leftover assets or to make a restructuring agreement based upon the investment bank and venture capital fund. SVB Financial Group could also discover fresh investors to finance the company, which did not refer to bankruptcy in a preceding notice about processes to recover from the Silicon Valley Bank breakdown.
The FDIC has engaged investment bank Piper Sandler to conduct an auction of Silicon Valley Bank, per Reuters, as the government-backed company was unable to find a buyer for the firm on Sunday.
Silicon Valley Bank, which catered to nearly 50% of venture-backed tech and healthcare firms in the U.S., had deposits that mostly went over the $250,000 FDIC insurance limit. To make sure the rest of the financial system, where about half of deposits were over the quarter-million mark, stayed secure, authorities quickly ensured all deposits at the bank were guaranteed.
Janet Yellen, Jerome Powell, and Martin Gruenberg, all of whom are government financial officials, declared in a joint statement on Sunday that the banking system has "remained unyielding and is populated by a reliable base," which is mainly the consequence of modifications made post-financial crisis that guarantee improved safety measures for the banking sector. Additionally, they pledged that "no losses" associated with the crumbling of Silicon Valley Bank will be "shouldered by the taxpayer."
The FDIC had to shut down Signature Bank in New York at the weekend, intensifying worries about the stability of the financial system. Generally, banks put a good amount of their deposits into investments, so if many customers request their money back simultaneously, they can't give all of it back. The bond portfolio sold by Silicon Valley Bank experienced a decrease in value due to the increased interest rates created by the Federal Reserve's moves to contain inflation.
President Joe Biden showed his trust in the banking system on Monday and affirmed that the “expeditious action” of his government stabilized the financial emergency. “Your deposits will be present when you require them. Small businesses all over the nation that put away accounts at these banks can relax knowing they will be able to pay their employees and pay their obligations,” he said in a declaration. “And their diligent employees can also relax.”
Entities that own shares in Silicon Valley Bank will not be safeguarded by the federal government. According to Biden, "They were aware of the potential for loss and, if the risk didn't pay off, investors will forfeit their funds. That's the nature of capitalism."