SVB Parent Files for Bankruptcy as Global Banking Market Wobbles

This tumultuous week began and ended the same: with Silicon Valley Bank still for sale.

Only now, the lender’s former parent company, SVB Financial Group, has officially filed for bankruptcy.

The Chapter 11 filing does not include SVB Securities and SVB Capital’s funds and general partner entities.

“SVB Financial Group intends to use the court-supervised process to evaluate strategic alternatives for SVB Capital, SVB Securities and the company’s other assets and investments,” the company said in a press release Friday (March 17).

SVB Financial Group’s former banking unit, Silicon Valley Bank (SVB), remains under FDIC (Federal Deposit Insurance Corporation) receivership, with the government hoping to find a buyer.

This, as reported by PYMNTS, while 11 leading U.S. banks swooped in to inject a collective $30 billion of uninsured deposits into San Francisco-based First Republic Bank to backstop the lender’s ongoing slide amidst a broader market panic following the failure of SVB and Signature Bank, both now on the FDIC’s Failed Bank List.

Despite the market leaders stepping in to rescue First Republic, Signature remains in FDIC receivership, while only private equity titans have so far expressed interest in picking over the bones of former tech-industry favorite SVB, which the government originally hoped to sell whole.

And it would appear that the market-led cash infusion for First Republic turned out to be but a band-aid, as the midsize lender’s stock fell 25% Friday (March 17), erasing the gains that followed the big banks’ unprecedented show of support, undertaken with the blessing of Treasury Secretary Janet Yellen.

Industry observers have noted that the cash infusion may give First Republic just enough time to properly explore a sale of its own, following its downgrading this week by Fitch Ratings and S&P Global Ratings amid the banking industry’s ongoing turmoil.

As reported by PYMNTS, Yellen told lawmakers Thursday (March 16) that it was unlikely the U.S. government would give other lenders the same treatment it extended SVB and Signature Bank unless “a failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences.”

Read more: SVB Crisis Spurs Greater Call for Bank Regulations, New Investigations

Lessons From 2008 Are Now More Relevant Than Ever

In a 2015 letter to shareholders, long-time JPMorgan CEO Jamie Dimon, whose bank was part of the consortium that stepped up to help First Republic by depositing $5 billion, wrote that his company’s earlier acquisition of failed institutions Bear Stearns and Washington Mutual after the 2008 crisis was an “expensive lesson that I will not forget,” adding that, “we would not do something like Bear Stearns again — in fact, I don’t think our board would let me take the call.”

That view, observers say, is shared by financial regulators who take the tack that the increased concentration in the banking industry post-2008, as failed banks were acquired by larger ones, was detrimental to the market and consumer choice.

This mindset led to many big banks reportedly being either cut out of SVB’s initial auction process or turning down the opportunity for fear of being hit with subsequent lawsuits, as JPMorgan was after the 2008 crisis.

The problem is that it is difficult for anyone other than the largest banks to buy lenders like SVB, which are, or were, still pretty big, especially when taken in their entirety.

Complicating matters is that without a buyer, depositors tend to flee to the bigger, more stable banks regardless.

Big banks have already received an influx of billions of deposits this week in the wake of SVB and Signature’s collapses, with the $30 billion given to First Republic, in one sense, effectively a return of some of that money.

What Recent Public and Private Moves Spell for Tomorrow’s Banking Landscape

Global banks have lost nearly half a trillion dollars in market value this month.

Even the biggest and best banks are only as good as confidence in the broader banking system, and that confidence has taken a hit in lieu of SVB’s failure, the biggest U.S. bank failure in the past 15 years.

Any buyer of either SVB or Signature will have to navigate a tremendously challenging business environment, higher interest rates and a customer cohort that is now more educated than it may have been before about the pitfalls of institutions carrying large, uninsured balances.

Adding to those challenges, as reported by PYMNTS, the Federal Reserve is considering enacting tougher rules for midsize banks after SVB collapse.

This Tuesday (March 14), Sen. Elizabeth Warren, D-Mass., alongside other Democratic peers, introduced new legislation to repeal the 2018 deregulations they allege allowed for SVB’s dramatic collapse and the closure of Signature Bank.

The name of the proposed bill is the “Secure Viable Banking Act,” or the “SVB Act.”