The Second-Biggest Bank Failure

Silicon Valley Bank on Friday became the biggest American bank to fail since the collapse of Washington Mutual in 2008, at the height of the global financial crisis.

The implosion of Washington Mutual, as well as the investment banks Lehman Brothers and Bear Stearns, was followed by a systemwide failure. From 2008 to 2015, more than 500 federally insured banks failed.

Most were small or midsize regional banks and were absorbed into other institutions, a common outcome for banks that have been put under government control. Washington Mutual, which was heavily involved in risky mortgages and became the largest bank to fail in U.S. history, was sold to JPMorgan Chase.

In recent years, fewer banks have gone under, thanks in part to stricter regulations that were put in place in the wake of the financial crisis. Before Silicon Valley Bank, the last firm to fail was in late 2020, as the coronavirus was ravaging the country.

It’s unclear whether the collapse of Silicon Valley Bank will spread to the broader industry. The bank was best known for its lending to technology and health care start-ups, and it had $209 billion in assets at the end of last year — making it the nation’s 16th-largest bank. But that is still small in comparison with the top three, which hold more than a trillion each and have much more diversified business models and customer bases.

The regulation that was put in place for the nation’s biggest banks after the financial crisis includes stringent capital requirements, which means they must have a certain amount of reserves for moments of crisis, as well as stipulations about how diversified their businesses must be.

But Silicon Valley Bank and others its size do not have the same regulatory oversight. In 2018, President Donald J. Trump signed a bill that lessened scrutiny for many regional banks. Silicon Valley Bank’s chief executive, Greg Becker, was a strong supporter of the move. Among other things, it changed requirements for the amount of cash that these banks had to keep on their balance sheets to protect against shocks.

On Friday, as the trading of Silicon Valley Bank’s stock was halted and the federal government began taking over its business, several other mid-sized institutions began to feel the weight of the collapse.

Shares of the First Republic and Signature banks tumbled on Friday, with Signature down nearly 23 percent at the end of trading. The S&P 500 fell 1.4 percent on Friday, ending the week down 4.5 percent — its worst weekly performance of the year.

Some of the nation’s largest Wall Street firms, however, including JPMorgan, Wells Fargo and Citigroup, saw their shares nudge higher.