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Documents show that the CEO of Silicon Valley Bank (SVB) sold $3.6 million in shares of the failed financial institution’s parent company several weeks before its collapse—the biggest U.S. bank failure since 2008 that sent a shudder of anxiety across markets.
A filing with the Securities and Exchange Commission (SEC) shows that Greg Becker, who joined SVB as a loan officer three decades ago before becoming CEO about a decade later, sold 12,451 shares of the bank’s parent company SVB Financial Group on Feb. 27.
Becker sold the shares in accordance with a trading plan filed on Jan. 26, a little over a month before the group sent a letter to stakeholders (pdf) saying it was looking to raise over $2 billion in capital after taking losses.
An inquiry sent to SVB outside of normal working hours asking whether Becker was aware of the bank’s plans to try and raise capital was not immediately returned.
The announcement sent SVB stock plunging and prompted its lightning-fast unwind. The bank’s shares fell more than 60 percent after the announcement, wiping out $9.4 billion in market value and sparking fears of contagion.
“Lots of chatter today about the possibility of generalized U.S. banking system stress due to SVB troubles. Three summary things on this: While the U.S. banking system as a whole is solid, and it is, that does not mean that every bank is,” stated economist Mohamed A. El-Erian in a tweet.
SVB Collapses, FDIC Steps In
SVB failed on March 10, just days after the bank sent the notification signaling its scramble to raise capital after reporting a $1.8 billion loss after being forced to sell Treasury bonds to meet its deposit obligations.
California regulators ordered the bank shut and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver.
The FDIC, which has a mandate to protect depositors in case of bank failure and insure their deposits up to a coverage limit of $250,000, said in a statement that all insured depositors will have full access to their covered deposits by March 13.
SVB had approximately $209.0 billion in total assets and roughly $175.4 billion in total deposits as of Dec. 31, according to the FDIC.
“At the time of closing, the amount of deposits in excess of the insurance limits was undetermined,” the FDIC said. “The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.”
As of the end of 2022, SVB had around 89 percent of its $175 billion in deposits that were uninsured.
The FDIC said that it will pay uninsured depositors an advance dividend sometime next week. Uninsured depositors will be given receivership certificates for the uninsured portion of their deposits and, as the FDIC sells SVB’s assets, depositors may receive additional future payments.
SVB is the largest bank to fail since the 2008 financial crisis when Washington Mutual collapsed.
Sheila Bair, who helmed the FDIC during the global financial crisis, told Reuters in an interview that bank regulators are likely now turning their attention to other banks that may have high amounts of uninsured deposits and unrealized losses, two factors that contributed to SVB‘s quick failure.
“These banks that have large amounts of institutional uninsured money … that’s going to be hot money that runs if there’s a sign of trouble,” Bair said.
The sequence of events that led to SVB‘s rapid collapse include it selling U.S. Treasuries to lock in funding costs due to expectations of higher interest rates.
Faced with persistently high inflation, the Federal Reserve has hiked interest rates rapidly and officials have warned of further tightening ahead.
US Banks ‘Generally in a Strong Financial Condition’
Several days before SVB failed, FDIC Chairman Martin Gruenberg warned bankers gathered in Washington that financial institutions face higher levels of unrealized losses, as the Fed’s rapid interest rate increases have driven down the value of longer-term securities.
“The good news about this issue is that banks are generally in a strong financial condition … On the other hand, unrealized losses weaken a bank’s future ability to meet unexpected liquidity needs,” Gruenberg said.
Gruenberg’s remarks came three days before SVB announced it was looking to raise capital.
The speed of the SVB crash stunned observers and blindsided markets, wiping out more than $100 billion in market value for U.S. banks in two days.
Several experts said any ripple effects in the rest of the banking sector are likely to be limited. Part of this is because bigger banks have more diverse portfolios and depositors than SVB, which was highly reliant on the startup sector.
“We do not believe there is contagion risk for the rest of the banking sector,” said David Trainer, CEO of New Constructs, an investment research firm.
“The deposit base from the major banks is much more diversified than SVB and the big banks are in good financial health,” he added.
SVB’s collapse could lead to calls for tougher regulation.
Reuters contributed to this report.
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