By Aakansha Malia 3:51 pm PST

In the largest bank failure since the 2008 financial crisis, the California Department of Financial Protection and Innovation shut down the Silicon Valley Bank and took control of its customer deposits of roughly $175 billion on Saturday, March 11. Following the collapse, the bank was put under the control of the US Federal Deposit Insurance Corporation (FDIC). The shutdown resulted in an aggressive decline of its stocks overnight by 60% in premarket trade, further leading to a market loss of over $80 billion.

The sudden collapse of the bank caused panic among legions of companies, depositors and investors, triggering a massive sell-off and contributing to the bank’s extreme market loss. Affected by higher interest rates, leading up to March 11, the firm known for popularly lending money to tech firms was attempting to raise funds worth more than $2 billion to bridge gaps in its balance sheet. With the deficit in their funds being made known by the fundraising effort, customers began withdrawing their funds and the firm was forced to delay its fundraising plan. However, the damage was already done. The troubled commercial bank situated in Santa Clara has now sent ripples across tech firms trading on the Nasdaq and the cryptocurrency community.

The FDIC announced on March 11 that insured depositors will have full access to their insured deposits no later than the morning of March 14. The National Bank of Santa Clara has now been created by FDIC to hold the deposits and other assets of the failed Silicon Valley Bank. . The regulatory body further said that while uninsured depositors will be paid dividends in advance within the next week, they will receive a receivership certificate for the remaining amount of their uninsured funds. According to the FDIC, money raised from selling the bank’s assets would go to its uninsured depositors. Customers with accounts holding over $250,000 were asked to contact the FDIC directly.

The abrupt demise of the Silicon Valley Bank has brought other troubled banks in the United States under the tight scrutiny of the federal government. Treasury Secretary Janet Yellen said on March 11 during her hearing before the House of Representatives Ways & Means Committee that, “there are recent developments that concern a few banks that I’m monitoring very carefully. And when banks experience financial loss, it is, and should be, a matter of concern.” The Treasury Department later issued a statement saying, “Secretary Yellen expressed full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient and regulators have effective tools to address this type of event.”

Remember, the CEO of Silicon Valley Bank had said in a disclosure on March 9 that the bank has sold “substantially all” of its securities portfolio and commenced a public offering that aims to raise $1.75 billion between common equity. However, the bank saw this coming since the Covid-19 pandemic hit the United States. The commercial bank invested most of its assets in US bonds after making millions of dollars by investing in upcoming tech startups.

The bank then suffered another setback when the Federal Reserve last year began raising interest rates to bring down inflation, which resulted in plummeting of bonds. Simultaneously, the startup funding started to dry up due to the financial stress brought in by the Covid-19 pandemic. These issues combined led to a higher rate of bank clients withdrawing their money, which led to the bank’s collapse.

According to an email seen by Reuters, FDIC has announced work from home for all of Silicon Valley Bank’s employees until further notice. A workforce of 8,528 has been offered 45 days of employment at 1.5 times their salary.

Edited by Elena Potek