A little-known California bank has become the biggest story in markets.
The Federal Deposit Insurance Corporation (FDIC) is taking control of SVB Financial after its stock-price crash dragged on the biggest names in US banking, including JPMorgan and Bank of America.
Here's everything you need to know about what's happening.
What happened?
SVB is a Santa Clara-based bank that lends money to and takes deposits from Silicon Valley tech startups.
It provided funding to 44% of all venture capital-backed tech and healthcare companies that publicly listed on a stock exchange last year, according to its website.
SVB's shares fell 86% between Thursday's opening bell and Friday before the company announced it would halt trading.
Regulators have now shut SVB Financial Group and have taken control of the bank's deposits.
Why did SVB's stock price crash?
There are two reasons – both tied to the Federal Reserve's aggressive interest-rate hikes as it bids to crush soaring inflation in the US.
The Fed's tightening campaign weighed on SVB's bond holdings, and it disclosed a $1.8 billion loss Thursday after completing a $21 billion fire sale of its fixed-income portfolio. The company tried and failed to raise $2.3 billion through stock sales to cover those losses.
In addition, startups find it more difficult to access funding with borrowings turning costlier – and that's fueled a high level of deposit outflows from SVB, analysts say. This sparked fears of a bank run, prompting several of the SVB's clients to limit their exposure to the institution.
SVB's "unique niche in the tech world is a real boon when that business is booming, but a problem when it's not," Interactive Brokers chief strategist Steve Sosnick said.
How is it affecting other bank stocks?
Crypto-friendly bank Silvergate Capital announced Thursday it would shut down – and the crisis at two financial institutions ignited fears of contagion effects across the entire sector, fueling a sharp selloff across banking stocks.
Wall Street's four biggest banks – JPMorgan, Bank of America, Wells Fargo, and Morgan Stanley – shed $55 billion in combined market value Thursday with investors rattled by the implosion of SVB and Silvergate, according to data from Refinitiv.
The KBW Bank Index – which tracks the price of the US's leading publicly-traded banks – plunged 7.7% Thursday for its worst day in almost three years.
On Friday, bank stocks offered a mixed picture. JPMorgan's stock price recovered some, while First Republic Bank saw its stock drop 20%.
Are investors worried?
Yes. Some of Wall Street's biggest names have raised the alarm as fears grow that SVB's turmoil will spread to the wider financial system.
"It is possible today we found our Enron," 'Big Short' investor Michael Burry said Thursday in a now-deleted Tweet, referencing the scandal-hit energy firm whose collapse came to symbolize the early-2000s stock-market crash.
Top economist Mohamed El-Erian and "Wolf of All Streets" trader Scott Melker are also fretting about the wider impact of what's happened.
What happens next?
On Friday, the FDIC shut Silicon Valley Bank.
"To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank," the regulator said in a statement.
Billionaire investor Bill Ackman had previously called for the US government to bail out the company because of its important role in the world of venture capital.
"The failure of SVB Financial could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash," he said on Twitter Thursday evening. A
"If private capital can't provide a solution, a highly dilutive government preferred bailout should be considered," Ackman added.
