<p>After the
US Federal Reserve (Fed) <a href=”https://www.financemagnates.com/institutional-forex/after-silicon-valley-bank-collapse-us-fed-announces-internal-investigation/” target=”_blank” rel=”follow”>declared an internal probe</a> following the collapse of Silicon
Valley Bank (SVB) last week, two more US government bodies want to scrutinize
the causes of the run on the institution’s deposits that put it on the brink of
<a href=”https://www.financemagnates.com/terms/b/bankruptcy/” class=”terms__main-term” id=”41b3ef0d-d805-441d-8443-121890264e94″ target=”_blank”>bankruptcy</a>, as per The Wall Street Journal (WSJ) report.</p><p>SEC and DoJ to Investigate
Silicon Valley Bank Collapse</p><p>The
Securities and Exchange Commission (SEC) and the Justice Department (DoJ) have
launched investigations into SVB. According to people familiar with the matter
who wished to remain anonymous, the inspections are in the preliminary stages
and may not necessarily lead to charges.</p><p>Conducting
such investigations are often practiced when large financial institutions face
sudden <a href=”https://www.financemagnates.com/terms/l/liquidity/” class=”terms__secondary-term” id=”47c3bef3-27ee-4953-8504-159e1b829b33″ target=”_blank”>liquidity</a> problems. For example, the purpose of the SEC’s and DoJ’s probes
may be to identify issues that have arisen at SVBs to ensure that they will not
be repeated in the future.</p><p>Additionally,
the ongoing investigations are looking into the stock sales made by officers of
SVB Financial shortly before the bank’s failure. According to the sources, the
Justice Department’s fraud prosecutors in both Washington and San Francisco are
involved in the probe.</p><blockquote class=”twitter-tweet”><p lang=”en” dir=”ltr”>BREAKING: Before the collapse of Silicon Valley Bank, executives sold a lot of their shares.Gregory Becker, CEO, sold 11% on Feb 27, 2023.Michael Zucker, General Counsel, 19% on Feb 5.Daniel Beck, CFO, sold 32% on Feb 27.Michelle Draper, CMO, sold 25% on Feb 1.Unusual. <a href=”https://t.co/SFMmpG5dhm”>pic.twitter.com/SFMmpG5dhm</a></p>— unusual_whales (@unusual_whales) <a href=”https://twitter.com/unusual_whales/status/1634555021487480834?ref_src=twsrc%5Etfw”>March 11, 2023</a></blockquote><p>Shares of
SVB Financial, the former owner of SVB, plunged more than 60% during Thursday’s
session and have been halted on Wall Street since Friday. The dynamic fall
stopped at $106 per share, well below the pandemic 2020 low, testing levels
last seen in 2016. In the
aftermath, the share price of local First Republic Bank also <a href=”https://www.financemagnates.com/fintech/svbs-collapse-casts-shadow-on-bank-shares-as-first-republic-bank-slumps-over-60/” target=”_blank” rel=”follow”>slumped over 60%</a> and Credit Suisse stocks <a href=”https://www.financemagnates.com/institutional-forex/credit-suisse-shares-hit-all-time-low-following-silicon-valley-bank-collapse/” target=”_blank” rel=”follow”>reached a new all-time low</a>. However, Tuesday’s session
brought a visible rebound and<a href=”https://www.financemagnates.com/fintech/us-bank-stocks-rebound-as-svb-contagion-fears-allay/” target=”_blank” rel=”follow”> a bullish correction of banking shares</a>.</p><p>Earlier on
Tuesday, Finance Magnates reported that the Fed had launched its own
internal investigation into the collapse of the SVB. Michael S. Barr, the Vice
Chair for Supervision at the central bank, and his team will review how SVB was
regulated and supervised by Fed before its collapse in search of potential
negligence that could explain the reasons for the sudden bankruptcy of the
institution. The final results will be released to the public by 1 May 2023.</p><blockquote class=”twitter-tweet”><p lang=”en” dir=”ltr”><a href=”https://twitter.com/federalreserve?ref_src=twsrc%5Etfw”>@federalreserve</a> announces that Vice Chair for Supervision Michael S. Barr is leading a review of the supervision and regulation of Silicon Valley Bank, in light of its failure. The review will be publicly released by May 1: <a href=”https://t.co/wQ39KLiwHE”>https://t.co/wQ39KLiwHE</a></p>— Federal Reserve (@federalreserve) <a href=”https://twitter.com/federalreserve/status/1635370572397056000?ref_src=twsrc%5Etfw”>March 13, 2023</a></blockquote><p>What
Happened at Silicon Valley Bank?</p><p>Silicon
Valley Bank was established in 1983 to cater to the banking needs of the tech
industry in Silicon Valley. It quickly became one of the largest banking institutions
in the US, offering a variety of products such as deposit services, loans,
investment products, cash management, and commercial finance.</p><p>The bank
saw a significant increase in deposits, reaching $198 billion by the end of the
first quarter of 2022, which was three times more than it had at the end of
2019. This growth was primarily due to the bank’s close-knit customer base in
the tech industry. SVB invested in 5-year bonds and 10-year mortgage-backed
securities, generating a fixed return of about 1.5%. However, these investments
turned sour when interest rates increased, and the <a href=”https://www.financemagnates.com/cryptocurrency/svb-crisis-circle-escapes-usdc-depeg-with-regulatory-assurance/” target=”_blank” rel=”follow”>bank failed to manage its
risks</a>.</p><p>The bank’s
problems worsened when some of its customers started withdrawing their
deposits, leading to a feedback loop that caused a significant drop in deposits
from $198 billion in March 2022 to $165 billion in February 2023, a decrease of
16%. This bank run ultimately led to the SVB’s failure. The previous Chief Risk
Officer left in April 2022 and was replaced in January 2023, but it was too
late to save the bank.</p>
This article was written by Damian Chmiel at www.financemagnates.com.
