Silicon Valley Bank Collapse Leaves Tech Industry in Limbo
On Friday morning, Silicon Valley Bank, a key financial institution for tech start-ups, collapsed and was taken over by federal regulators. The financial crisis for SVB began Thursday when the bank reported a $1.8 billion loss on bond sales in the first quarter of 2023 and revealed it had taken a sharp drop in deposits from its venture capitalist and start-up clientele. To make up for the losses, the bank planned to raise $2.25 billion in additional capital.
The FDIC is now in charge of the bank and has said that all insured depositors will have full access to their deposits up to $250,000 on Monday morning. SVB had $174 billion in deposits and more than 85% of those were uninsured, leaving the fate of depositors with more than $250,000 in SVB uninsured. The FDIC has said that uninsured depositors will receive an advance dividend within the next week, as well as a “receivership certificate” for the remaining amount of their funds.
The collapse of Silicon Valley Bank has caused a great deal of anxiety in the tech industry. SVB had become a centerpiece of finance in the tech industry, providing financing to almost half of US venture-backed technology and health care companies. Now, tech startups are left with questions about cash flow and access as the FDIC moves in. Furthermore, a toy company based in New York has been caught up in the collapse and is begging customers for help to keep it afloat.
The bank's swift fall had much to do with its clientele of Silicon Valley start-ups and the venture-capital and private-equity firms that fund them. The bank had become a go-to bank and lender to startups in the tech sector and a crucial part of the ecosystem. In addition, SVB had invested much of its money in Treasury bonds that don’t mature for years, and with the Federal Reserve raising interest rates, prices of the bonds have fallen, creating billions of dollars in paper losses for SVB.
Silicon Valley Bank had become the go-to lender for tech startups and was a crucial part of the tech ecosystem, but the bank's collapse has left many startups and venture capitalists in a state of limbo. The FDIC is now taking over control of the bank and has said that insured depositors will have full access to their deposits up to $250,000 on Monday morning.
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