Silicon Valley Bank parent company files for Chapter 11 bankruptcy; First Republic Bank gets $30 billion lifeline

Yahoo Finance Live anchors Julie Hyman and Brad Smith discuss news that SVB Financial has filed for Chapter 11 bankruptcy following First Republic Bank’s $30 billion lifeline in the form of uninsured deposits from 11 big banks.

Video transcript

JULIE HYMAN: Well, Silicon Valley Bank Financial Group has filed for Chapter 11 bankruptcy protection with the company saying it believes it has $2 billion worth of liquidity. And this comes as the country's biggest banks swooped in to save First Republic Bank, or at least to try, with the firm set to receive a $30 billion lifeline from the likes of JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and Morgan Stanley, as well as six others.

And by the way, that lifeline is coming, interestingly enough, in the form of deposits. In other words, because a lot of folks are pulling their money out of First Republic, these banks are now putting money in.

But we should probably start with now the SVB bankruptcy filing, which the company says in the filing is being done to preserve value of what is still left within the bank, the assets that are left there. I guess they couldn't find a sell-- a buyer for these assets.

BRAD SMITH: Right. And for Silicon Valley Bank and the entire week that has been, whether that be the action from the FDIC, Treasury, as well as the Federal Reserve, or even with this attempt for-- you know, and the fallout from some of the other regional banks, especially with regard to First Republic Bank, I think now we've seen swiftly how important many of these regional banks are for-- Silicon Valley Bank, whether it's because venture capitalists pushed some startups towards that bank or whether it's because some businesses opt for it themselves. It goes to show just how much of a role the regional banks play, especially in these startup phases of a company.

Because typically outside of the early family investments, outside of perhaps some angel investors out there, when you are looking for that loan, when you're looking for some type of capacity even just to store the cash, the capital that you've been able to take on, you're often looking towards some of these regional banks if you are a startup as opposed to some of the larger banks out there. But it becomes even more of an issue when you become a publicly traded company, for instance, and you're still holding so much of your funds significantly in a regional bank like Silicon Valley Bank.

And with what you mentioned with First Republic Bank, it's interesting. The deposits that were actually given up by some of those larger banks and the consortium of some of those regional banks as well and P&C that I think of, but this is an uninsured deposit that they all put in to First Republic Bank. So Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, all of them $5 billion there. And then you've got BNC, PNC, State Street as well putting in $2 and 1/2 billion in these uninsured deposits. Truist and US Bank also making uninsured deposits of $1 billion towards this.

JULIE HYMAN: Yeah, and what's interesting is all of this coming together after the bank already got $70 billion in aid from JPMorgan and the Federal Reserve earlier in the week, and that did not serve to stem the losses. But guess what? This morning's deposits are not stemming the losses either.

And our David Hollerith, who has been all over this story, has a really interesting one out on the Yahoo Finance platform now that sort of looks at how this latest rescue effort came together. It started, maybe not surprisingly, with Jamie Dimon being in Washington and wanting to speak with Janet Yellen about all of this, and then it sort of moved on from there. And you can read all about it, again, at yahoofinance.com. But the stock is still down 21%.

BRAD SMITH: Right.

JULIE HYMAN: So now we have seen $100 billion go into First Republic in the form of this aid, and it hasn't seemed to help. And it's really interesting that there is still this sentiment disconnect here on this bank and on some of the other regional banks, right? Even if things-- we've talked about this really as this crisis has been ongoing. Even if everything is fine from-- fine from an actual asset basis, an actual operations basis, if people think it is not fine, then that becomes the self-fulfilling prophecy. Obviously that's the threat of a bank run.

BRAD SMITH: And what do unfortunately at this point in time, when you've got other stores of value-- at least that's-- at least that's how it's been pitched in some of the cryptocurrencies out there. There is an overlap in how some regulators and lawmakers have talked about where some of these banks have placed some of their own interests in crypto as well.

And then separately from that, as you have competing stores of value, as, you know, of course the historical makeup and instrument of bank-- and that service has been for so many people. If there is a lapse in confidence in the bank system as the store of value as being able to hold onto your cash and it being as liquid as it should be and it has been for so long, then people start to think, OK, where is the safe store of value at the end of the day?

And so that's what many of the banks swooping in here are trying to reinstill, as was really laid out in their statement. Regional, midsize, and small banks critical to the health and functioning of our financial system.

JULIE HYMAN: Yeah, and I just wanted to take a beat here as we try to absorb the latest news because it has been a week, right? It's not just been a week. It's been month here. But with the collapse of Silicon Valley Bank unleashing chaos across the globe, then exacerbated by Credit Suisse, et cetera, I do want to go back and sort go through the events that brought us here.

On March 1, remember, that's when Silvergate published a late notice and warned that there was going to be more trouble ahead. Then it said it was going to voluntarily liquidate on March 8. At that point, there was not more sort of widespread issues, right, and concerns.

But then Silicon Valley Bank said it was going to do a stock offering. That caused some head scratching. Why is it doing this stock offering? Then it was revealed that it was because it had some of these unrealized losses and then very quickly got shut down last Friday.

Over the weekend, of course, regulators getting together, trying to figure out what to do. At the same time that they said that they were going to make those SVB depositors whole, at the same time they announced that Signature Bank would be getting shut down. And also First Republic got that first slice of liquidity support that I mentioned from JPMorgan and the Federal Reserve.

So that all happening just in the span of, what, like three days? Everything was just crunched together. We had some turmoil early in the week with First Republic and the other regional bank shares.

But then on Wednesday, that's when we got the news that the Saudi National Bank would not be putting more money into Credit Suisse. So then we really had the migration of the concerns from regional banks in the US and the banking system in the US to the International banking system. Credit Suisse said it was going to potentially tap into that more than $50 billion lifeline from the Swiss National Bank.

And then, of course, that brings us to today and this rescue of First Republic. And now, of course, we'll be adding another dot to that timeline, and that is the SVB bankruptcy filing. It just-- and this timeline really throws into relief why this feels a little bit like the financial crisis. Again, just to emphasize, there's no indication that it is anywhere near the magnitude of the financial crisis, but it brings that echo back because it is just, you know, "bum, bum, bum, bum, bum," just one thing after the other in terms of this compressed timeline of all of these failures sort of cascading.

BRAD SMITH: And how if one thing-- one thing or another did not happen during that timeline and the swift action that we saw even between the 12th and the 13th where you saw the consortium of the FDIC, the Treasury, and the Federal Reserve all have to do something at the end of the day-- if there was nothing done-- we were, you know, of course interviewing some of the startups, the small businesses, as well as the VCs that were present at a very thrills amid some chills type of conference, South by Southwest.

And one of those founders who wasn't directly connected to SVB had told us that for a lot of the conversations he was having, people were concerned. The business leaders, the entrepreneurs, the CEOs that were banking with Silicon Valley Bank, they did not know if they were going to be able to access their money. They thought-- and he put it as Monday would be D-day if something didn't happen.

Now, we had spoken to him in the afternoon of Sunday. By Monday morning, we had--

JULIE HYMAN: Something had happened, yeah.

BRAD SMITH: --a little bit more of an answer--

JULIE HYMAN: Yeah.

BRAD SMITH: --at least for the time being here too.