US regulators shut down the country’s 16th largest bank, the largest financial institution failure since the 2008 financial crisis.
Silicon Valley Bank collapsed after depositors — mostly tech workers and venture-capital-backed companies — started withdrawing money, causing a bank run.
The Federal Deposit Insurance Corporation (FDIC) has seized its assets.
It said the bank had $209bn (£173bn) in assets and $175.4bn (£146bn) in deposits at the time of its collapse.
It was not immediately clear how many deposits exceeded the $250,000 (£207,000) insurance limit.
The bank’s collapse marks the biggest failure of a U.S. bank since Washington Mutual during the 2008 financial crisis.
The FDIC was unable to immediately find a buyer for the bank’s assets, an indication of how quickly depositors were cashing out.
It also seized assets from banks in the middle of the workday, a sign of how dire things have become.
Doubts over Silicon Valley Bank’s finances have come under increasing pressure this week after it announced plans to raise up to $1.75bn (£1.45bn) to bolster its capital position.
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Silicon Valley banks, once the main financial conduit for venture capital-backed companies, have been hit hard over the past 18 months as the Federal Reserve raised interest rates and made riskier tech assets less attractive to investors.
The bank has significant exposure to the tech sector, but experts say the knock-on effects in the sector are unlikely to be the same as they were in the months leading up to the recession more than a decade ago.
The major banks have enough capital to avoid similar situations from happening.
In 2007, mortgage-backed securities linked to ill-advised home loans spread from the US to Asia and Europe, triggering the biggest financial crisis since the Great Depression.
The panic on Wall Street led to the collapse of the legendary Lehman Brothers, founded in 1847.
‘Mild panic’ as bank failures leave investors ‘panicked’
The City of London also felt the impact of the bank failure on Friday.
HSBC and Standard Chartered, two of the largest international banks, were sharply lower in the FTSE 100, down more than 4.5%.
Susannah Streeter, head of currency and markets at Hargreaves Lansdown, said there was a “slight panic mode” in financials due to the news from Silicon Valley Bank.
Investors were also spooked by interest rate concerns, but they were particularly “spooked” by news from the United States, she said.
The FTSE 100 index closed down 1.7%, or 131.63 points, to 7,748.35.
U.S. markets also fell, with the S&P 500 giving up 0.7% of its value, while the Dow Jones lost 0.4% shortly after London trading ended.
France’s Cac 40 and Germany’s Dax both closed down 1.3 percent.
In currency markets, sterling rose 1.1% against the dollar to trade at 1.205 by the close.