The shutdown of one of Silicon Valley’s most influential banks on Friday was the largest financial institution to close down since the Great Recession of 2008 closed down Washington Mutual.

>> Read more trending news

Silicon Valley Bank is the second-biggest shutdown in U.S. history. The closure placed nearly $175 billion in customer deposits under the control of the Federal Deposit Insurance Corporation, according to The New York Times. The bank lent money to some of the biggest names in the technology industry, according to the newspaper.

The California Department of Financial Protection and Innovation shut down the bank on Friday, according to The New York Times. The FDIC created a new bank, the National Bank of Santa Clara, to hold the deposits and other assets of the failed one.

In a news release, the agency said that the new bank would be operating by Monday. Checks from the old bank will continue to clear, the FDIC said.

The closing had immediate effects, with startups with accounts scrambling to pay their workers, The Associated Press reported.

Here are some things to know about the bank collapse:

What is Silicon Valley Bank?

Silicon Valley Bank, based in Santa Clara, California, is a publicly traded company, The Washington Post reported. The bank is federally insured, which means that if it cannot pay its depositors, it can receive money from the federal government. it was founded in 1983 and specializes in banking for tech startups, according to CNN.

According to its website, the bank works with “nearly half " of venture-backed startups in the U.S. Its clients include 44% of venture-backed tech and health-care companies that went public, the Post reported. Some of the companies include ZipRecruiter and Pinterest, according to the newspaper. Other firms included Lightspeed, Bain Capital and Insight Partners.

Silicon was among the top 20 American commercial banks, with $209 billion in total assets at the end of last year, according to the FDIC.

What caused the shutdown?

Silicon Valley Bank held a large number of Treasury and other government bonds, the Post reported. The reason for its downfall was twofold, according to The Wall Street Journal.

First, the bank grew too quickly by using borrowed short-term money from depositors who could ask for repayment at any time, and officials invest the cash in long-term assets that it was unable -- or unwilling -- to sell, the newspaper reported.

Like other banks, Silicon Valley Bank kept a small amount of its deposits on hand, investing the remainder with the idea of earning a return, according to the Times.

But when the Federal Reserve began raising interest rates last year to temper inflation, startup funding resources began to dry up, the newspaper reported. Meanwhile, the bonds held by the bank became less valuable and SVB needed to recover its losses, the Post reported.

According to CNN, the bank’s $21 billion bond portfolio was yielding an average of 1.79%, while the current Treasury yield is about 3.9%.

“Everyone on Wall Street knew that the Fed’s rate-hiking campaign would eventually break something, and right now that is taking down small banks,” Ed Moya, a senior market analyst at Oanda, told CNN.

In its surprise disclosure on Wednesday, the bank said it had lost nearly $2 billion and had sold $21 billion in assets and planned to sell some of its stock to raise money, the Post reported.

Shares of the bank dropped by 60% on Thursday after its filing. Following the sharp decline, trading on the bank’s stock was halted, followed by regulators shutting down the bank.

What effect will the shutdown have?

Silicon Valley Bank’s $209 billion in assets is small compared to larger banks. For example, JPMorgan Chase has more than $3 trillion, the Times reported.

The biggest concern among other banks is that Silicon Valley Bank’s failure could spook their customers.

Silicon opened a branch in Miami in 2021 to capitalize on the South Florida city’s growing entrepreneurial culture, the Miami Herald reported. The bank already had a presence in Florida, providing financing to tech startups in the state, Saxon Baum, a partner at Tampa-based Florida Funders, told the newspaper.

Baum said he did not have specific numbers, but told the Herald that “a fair amount of companies bank with Silicon Valley Bank and a fair amount of companies have taken on debt from Silicon Valley Bank.”

Meanwhile, shares of San Francisco-based First Republic Bank and New York’s Signature Bank had dropped more than 20% on Friday, the Times reported. However, shares of larger banks like JPMorgan Chase, Wells Fargo and Citigroup inched higher Friday after dropping on Thursday, according to the newspaper.

When was the last time a bank failed?

Days before Silicon’s shutdown, Silvergate Capital Corp., one of the cryptocurrency industry’s largest banks, announced that it was shutting down, according to The Wall Street Journal.

According to the FDIC, there were no failures in 2021 and 2022, while four banks, including Almena State Bank in Kansas, failed in 2020, the FDIC said.

After the Great Recession of 2008, there were 140 bank failures in 2009, 157 in 2010, and 92 in 2011, according to the Post. Between 2001 and 2022, 561 banks failed, according to the FDIC.

Silicon Valley Bank joins that list.

“A $200 billion bank should not fail because of liquidity,” Eric Rosengren, who served as president of the Federal Reserve Bank of Boston from 2007 to 2021, told The Wall Street Journal. “They should have known their portfolio was heavily weighted toward venture capital, and venture-capital firms don’t want to be taking risk with their deposits. So there was a good chance if venture-capital portfolio companies started pulling out funds, they’d do it en masse.”