Silicon Valley Bank Shuts Down: Tech Titans, Market Panic, and the Fallout for Startups.

Silicon Valley Bank, a major lender to the tech sector, was shut down by regulators on a Friday, causing a broader sell-off in stocks and raising concerns that other banks may be at risk of failure. Founded in 1983, the bank had grown to become the 16th largest in the US with $210 billion in assets, and had an impressive client list including Airbnb, Cisco, Fitbit, Pinterest, and Square.

Here’s what happened and what it means for the tech and financial sectors.

On Wednesday evening, SVB announced that it was planning to raise $2 billion to strengthen its financial position, as it suffered losses due to the broader slowdown in the tech sector. It also revealed that an increase in startup clients withdrawing their deposits had affected the value of its securities due to higher interest rates. On Thursday morning, SVB shares began to see a massive sell-off, and by the end of the day, they had fallen by 60%.

Despite SVB CEO Gary Becker’s plea with tech investors to “stay calm” on Thursday, the situation continued to worsen. By Friday morning, SVB had been unable to raise the cash it had been hoping to assemble, and was looking for a buyer as deposit outflows continued to accelerate. Customers began lining up outside its Park Avenue offices to withdraw their money, and the bank even called the New York Police Department for assistance.

By noon Friday, California state and federal banking regulators announced that they were taking over SVB’s deposits and putting the bank into receivership, making it the second-largest bank failure in US history, behind the collapse of Washington Mutual in September 2008.

Before the shutdown, some banking analysts dismissed concerns about a potential “contagion” stemming from SVB’s problems that could unsteady the banking sector, though they didn’t rule out the possibility that the bank could fail. JPMorgan analyst Vivek Juneja said that the sell-off was overdone, as large banks had more liquidity, were more diversified, had more capital, and were much better managed in regards to risk. Morgan Stanley analysts Manan Gosalia and Betsy Graseck echoed that sentiment, saying that the issues were highly idiosyncratic and should not be viewed as a read-across to other banks.

However, regulators’ intervention on Friday spooked investors and reversed a short-lived recovery in the broader market. The Dow Jones index was down 1.3% in afternoon trading, the S&P down 1.7%, and the tech-heavy Nasdaq down more than 2%. Many startup executives whose companies banked with SVB are now likely facing a payroll crisis, as the FDIC is authorized to release only insured deposits of up to $250,000.

According to Brad Hargreaves, a startup founder who previously served on boards of companies that did business with SVB, the bank often played a dual role as corporate and personal lender to CEOs. SVB tied a company’s loan to an executive’s mortgage, and a default on one would trigger a default on the other. Silicon Valley Bank is to tech what Bank of America is to Main Street, he said, adding that they had become really integrated into the lives of a lot of founders.

Silicon Valley Bank’s shutdown is a significant event that caused a sell-off in stocks and sparked concerns about the stability of the banking sector. While some banking analysts dismissed the possibility of contagion, regulators’ intervention on Friday spooked investors and reversed a short-lived recovery in the broader market. The situation is likely to impact many startup executives whose companies banked with SVB, as they may now be facing a payroll crisis due to the FDIC only being authorized to release insured deposits of up to $250,000.

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