March 9 (Reuters) - The S&P 500 bank index (.SPXBK) was down 4.6% on Thursday as investors grew wary of the entire sector after SVB Financial Group's (SIVB.O) share sale announcement and crypto bank Silvergate's decision to wind down operations.
Shares in SVB, whose operating segments include Silicon Valley Bank, led declines, with a drop of 43.8% to $150.62 after it announced the $1.75 billion share sale late on Wednesday as it battles cash burn due to declining deposits from startups struggling with a venture capital funding drought.
The second biggest decliner in the S&P 500 index was another San Francisco-based bank, First Republic (FRC.N), which was off 14.1% after hitting its lowest level since October 2020. Also Zion Bancorp (ZION.O), down 8.2%.
The SPDR S&P regional banking ETF (KRE.P) was down 6.0% after hitting its lowest point since January 2021.
"The Silicon Valley raise got everybody nervous about people's capital levels and what deposits are doing. A lot of institutional investors don't feel great about owning certain banks right now," said R.J. Grant, head of trading at Keefe, Bruyette & Woods in New York.
"It just gets people freaked out because Silicon Valley, historically has been a very strong, well-run bank. If they're having issues right now, people are wondering what about other banks that are lesser quality and that don't have the reputation that Silicon Valley Bank has."
Investors were also grappling with the decline of cryptocurrency-focused lender Silvergate Capital (SI.N), which said earlier this month it was evaluating its ability to operate as a going concern.
Silvergate was down 20.7% on Thursday after confirming late on Wednesday that it planned to wind down operations and voluntarily liquidate after it was hit with losses following the collapse of crypto exchange FTX.
Shares in Silvergate peer Signature bank (SBNY.O) were down 8.1%.
The biggest U.S. banks were not immune to the fears with JPMorgan (JPM.N) down 3.9% and Bank of America (BAC.N) off 4.4%.
Smaller bank PacWest Bancorp (PACW.O) was down 18.0%.
(This story has been corrected to fix KRW to SPDR S&P regional banking ETF KRE.P in paragraph 4)
