March 13, 2023 Latest on the Silicon Valley Bank collapse

The Federal Reserve announced Monday it has launched a review of the supervision and regulation of Silicon Valley Bank following the lender's sudden implosion.

The Fed said the review will be run by Michael Barr, the central bank's vice chair for supervision, and the results will be publicly released by May 1.

The review comes just days after Silicon Valley Bank collapsed, raising questions about how regulators — including those at the Fed itself — missed the trouble that was brewing.

Stocks closed mixed on Monday after a volatile trading day as investors mulled over federal regulators' plan to stymie effects from the collapse of Silicon Valley Bank and Signature Bank.

Stocks teetered throughout the day as investors assessed the US government's actions and how upheaval in the banking sector will affect the Federal Reserve's monetary policy going forward.

The VIX, which measures market volatility, reached its highest level since late 2022 as shares of US regional lenders dipped in and out of trading halts Monday. Shares of Western Alliance tumbled 47%. First Republic Bank tanked about 62%. Even the larger banks were affected: Wells Fargo fell by roughly 7% and Citigroup dropped by 7.4%.

The 2-year Treasury note, meanwhile, posted its largest three-day yield drop since the Black Monday stock crash in October of 1987.

Tuesday's Consumer Price Index inflation report for February will offer more clues about inflation rates and future interest rate hikes.

The Dow fell 91 points, or 0.3% in trading on Monday.

The S&P 500 was 0.2% lower.

The Nasdaq Composite gained 0.5%.

Stocks teetered but held on to their gains by mid-afternoon Monday, as Wall Street mulled over the government's plan to keep banks afloat.

The Nasdaq Composite climbed 1.3%, leading the major indexes' gains. The S&P 500 gained 0.6% and the Dow rose 0.4%.

The US government raced to prevent further fallout in the bank sector over the weekend after the collapse of Silicon Valley Bank and Signature Bank. The Biden administration said it will backfill customer deposits at both banks.

That's "gone a long way towards curing some of the crisis of confidence investors had in what occurred in the banking sector and its spillover to not only other banks and financial institutions, but maybe even ultimately the broader economy," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

Treasury yields have fallen sharply, with 2-year notes seeing their largest three-day drop since Black Monday in October 1987. The drop in yields has helped "support those long-duration, high-growth sector securities that dominate, say for instance the tech or communications sector," Luschini said.

As shares of regional banks plummet, financial institutions are attempting to ease worries on Wall Street that they could face the same troubles that plagued Silicon Valley Bank.

Charles Schwab trimmed steep losses on Monday after putting out a statement that emphasized the company has access to plenty of cash.

Schwab said that more than 80% of its total bank deposits fall within insurance limits of the Federal Deposit Insurance Corporation, which insures up to $250,000.

“Schwab is well-positioned to navigate the current environment,” the company said, adding that it applauds regulatory efforts to support depositors and “bolster confidence across the American banking system.”

Schwab shares were down about 10% in recent trading, recovering a bit from an earlier selloff of as much as 23%.

Shares of Western Alliance, a Phoenix-based regional bank, plunged about 53% in recent trading even after attempting to ease investor concern.

“Western Alliance has taken additional steps to strengthen its liquidity position to ensure that we are in a position to meet all of our client funding needs, including increasing our borrowing capacity,” Western Alliance CEO Kenneth Vecchione said in a statement.

Western Alliance described deposit outflows as “moderate” and said cash reserves exceed $25 billion.

First Republic Bank on Sunday said its capital and liquidity positions are “very strong,” bolstered by tapping new cash from the Federal Reserve and JPMorgan Chase. 

Shares of First Republic Bank are down 65% in recent trading.

Silicon Valley Bank collapsed with astounding speed on Friday. And while the US federal government stepped in to guarantee customer deposits, its downfall continues to reverberate across global financial markets — as seen in the subsequent shutdown of Signature Bank — and investors are on edge about whether its demise could spark a broader banking meltdown.

Here’s what you need to know about the biggest US bank failure since the global financial crisis in 2008:

Why did it collapse?: The root of its demise goes back several years. Like many other banks, SVB ploughed billions into US government bonds during the era of near-zero interest rates. What seemed like a safe bet quickly came unstuck, as the Federal Reserve hiked interest rates aggressively to tame inflation.

When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio. The portfolio was yielding an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%, Reuters reported.

At the same time, the Fed’s hiking spree sent borrowing costs higher, meaning tech startups had to channel more cash towards repaying debt. At the same time, they were struggling to raise new venture capital funding. That forced companies to draw down on deposits held by SVB to fund their operations and growth.

Then the bank run: When SVB announced that it had sold a bunch of securities at a loss and would sell $2.25 billion in new shares to plug the hole in its finances, customers panicked and withdrew their money in large numbers.

The bank’s stock plummeted 60% Thursday and dragged other bank shares down with it. By Friday morning, trading in SVB shares was halted and it had abandoned efforts to raise capital or find a buyer. California regulators intervened, shutting the bank down and placing it in receivership under the Federal Deposit Insurance Corporation, which typically means liquidating the bank’s assets to pay back depositors and creditors.

In aiming to prevent further bank runs and helping companies pay staff and fund operations, US regulators said Sunday that they would guarantee all SVB customers’ deposits. The intervention does not amount to a 2008-style bailout, however, which means investors in the company’s stock and bonds will not be protected.

Will this trigger a banking crisis? There are already some signs of stress at other banks, and authorities in the US and across Europe are watching closely. Trading in First Republic Bank (FRC) and PacWest Bancorp (PACW) was temporarily halted Monday after the shares plunged 65% and 52% respectively. Charles Schwab (SCHW) stock was down 7% at 11.30 a.m. ET Monday.

In Europe, the benchmark Stoxx Europe 600 Banks index, which tracks 42 big EU and UK banks, fell 5.6% in morning trade — notching its biggest fall since last March. Shares in embattled Swiss banking giant Credit Suisse were down 9%.

SVB isn’t the only financial institution whose investments into government bonds and other assets have fallen dramatically in value. At the end of 2022, US banks were sitting on $620 billion in unrealized losses — assets that have decreased in price but haven’t been sold yet, according to the FDIC.

Another key headline: HSBC stepped in Monday to buy SVB UK for £1 ($1.2), securing the deposits of thousands of British tech companies that hold money at the lender. Had a buyer not been found, SVB UK would have been placed into insolvency by the Bank of England, leaving customers with only deposits worth up to £85,000 ($100,000) — or £170,000 ($200,000) for joint accounts — guaranteed.

Western Alliance Bank said Monday that it's taking steps to fulfill its clients' funding needs after troubles in regional banks sent its stock spiraling.

"As of this morning, cash reserves exceed $25 billion and are growing, while deposit outflows have been moderate. Including accounts eligible for pass-through insurance, insured deposits exceed 50% of total deposits," CEO Kenneth Vecchione said in a statement.

Shares of the bank fell 60% Monday morning, reaching a new 52-week low. The stock was one of several regional bank stocks that moved in and out of trading halts as Wall Street grappled with the collapse of Silicon Valley Bank and Signature Bank.

Banking stocks remained down Monday, even as markets managed to reverse their earlier losses.

First Republic Bank shares plunged by about 66% in trading on Monday despite the regional lender announcing steps to shore up its finances.

Shares of other regional banks and financial firms are also stumbling, signaling continued nervousness among investors even after federal regulators stepped in late Sunday to protect depositors at Silicon Valley Bank, which failed Friday, and Signature Bank, which was shut down on Sunday.

Charles Schwab was down more than 11% on Monday afternoon after recovering from a 23% drop earlier in the day — its largest daily decline on record.

The drop came even as Schwab executives worked to assure customers that the bank is stable. “We have access to significant liquidity, including an estimated $100 billion of cash flow from cash on hand, portfolio-related cash flows, and net new assets we anticipate realizing over the next twelve months,” said chief financial officer Peter Crawford in a monthly activity statement.

San Francisco-based First Republic, meanwhile, announced fresh funding from the Federal Reserve and JPMorgan Chase on Sunday to strengthen its balance sheet.

The moves mean First Republic now has $70 billion in unused liquidity — firepower it can use to respond to potential customer withdrawals.

“First Republic’s capital and liquidity positions are very strong, and its capital remains well above the regulatory threshold for well-capitalized banks,” Jim Herbert, First Republic’s founder and executive chairman, and CEO Mike Roffler said in a statement.

The lender reached out to customers over the weekend in a bid to reassure them.

Etsy, a hugely popular online marketplace for artisans to list and sell handmade items, told CNN Business it experienced a delay in issuing payments to some sellers because of the unexpected collapse of Silicon Valley Bank. 

"We understand how important it is for these small businesses to be able to receive their funds when they need them. This impacted a small group of sellers, approximately 0.5% of our active seller base," an Etsy spokesperson said in an email to CNN Business on Monday. 

Etsy Marketplace, which has 5.4 million global sellers worldwide, has accounts with multiple banks. It said its account SVB held a a low single-digit percentage of its total cash.

The company said it has started processing payments via another payment partner on Monday.

Senate Republicans are currently receiving a briefing from the Treasury Department on the collapse of Silicon Valley Bank, Sen. Tim Scott's spokesperson told CNN. Scott is on the Senate Banking Committee.

The briefing comes after several Republicans on the committee were not included on invitations for an all-member briefing by the Treasury last night. Some of those members were able to join the briefing very late after flagging the issue to the Treasury, but this briefing today is intended to keep members across the aisle in the loop.