SVB Collapse Could Have Far-Reaching Impacts for Tech World
Silicon Valley Bank, the lender that has been a fixture in the venture capital space for decades, collapsed on Friday, March 10, 2023.[0] The collapse was caused by a bad bet on interest rates and a bank run, which caused a massive drop in their share price.[1] This prompted the California Department of Financial Protection and Innovation to close the bank and name the United States Federal Deposit Insurance Corporation (FDIC) as the receiver.[2]
The FDIC announced that insured depositors will have access to their funds on Monday, March 13, 2023.[3] Uninsured depositors, however, will receive an “advance dividend” of an unspecified amount within the next week.[4] In order to make up for the losses, SVB said it planned to raise $2.25 billion to build up its finances.[5]
SVB was originally founded in 1983 and was designed to serve businesses.[6] It specialized in loans to venture funds and private equity firms and 9% to early and growth-stage companies.[7] By the end of 2022, the bank was doing business with nearly half of all U.S. tech startups backed by venture capitalists.[8]
The bank's downfall followed the Federal Reserve’s decision to raise interest rates aggressively, which caused the value of long-term bonds to decline. This led to billions of dollars in paper losses for the bank, which was unable to pay back customers who withdrew their deposits.[9]
The FDIC’s takeover of SVB has sparked fears of contagion effects across the entire banking sector. Signature Bank, prominent in the crypto world, saw its shares drop over 30% while shares of First Republic, a regional bank, fell by 23%.[2]
The collapse of SVB could have far-reaching impacts in the tech world, as it is the preeminent provider of venture debt in the industry. It is also a major lender to Chinese startups, who often find it difficult to get financing from traditional banks.
Analysts have stated that SVB's failure will not cause a ripple effect similar to the one that occurred during the global financial crisis, even though there may have been an initial wave of alarm on Wall Street.[0] Now, depositors wait to see how they will be able to recoup their uninsured deposits.[2]
0. “How does a bank collapse in 48 hours? A timeline of the Silicon Valley Bank fall” KABC-TV, 11 Mar. 2023, https://abc7.com/svb-silicon-valley-bank-timeline-explainer/12942100/
1. “Opinion | Silicon Valley Bank’s collapse reflects the tech sector’s deep anxiety” The Washington Post, 11 Mar. 2023, https://www.washingtonpost.com/opinions/2023/03/10/silicon-valley-bank-collapse-tech-sector/
2. “Silicon Valley Bank had no official chief risk officer for 8 months while the VC market was spiraling” Fortune, 10 Mar. 2023, https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer
3. “How Silicon Valley Bank's Failure Is Creating Total Chaos” New York Magazine, 10 Mar. 2023, https://nymag.com/intelligencer/2023/03/how-silicon-valley-banks-failure-is-creating-total-chaos.html
4. “Silicon Valley Bank collapse hits companies such as Camp, Compass Coffee” Fox Business, 11 Mar. 2023, https://www.foxbusiness.com/markets/silicon-valley-bank-collapse-hits-companies-camp-compass-coffee
5. “Why the SVB-Triggered Selloff Is a Buying Opportunity in Big Bank Stocks” Barron's, 10 Mar. 2023, https://www.barrons.com/articles/bank-stock-buy-svb-52ee8b9e
6. “Most of Silicon Valley Bank's Deposits Were Uninsured” TIME, 10 Mar. 2023, https://time.com/6262009/silicon-valley-bank-deposit-insurance/
7. “Companies scramble to meet payroll, pay bills after SVB's swift failure” CNBC, 10 Mar. 2023, https://www.cnbc.com/2023/03/10/silicon-valley-bank-customers-scramble-to-meet-payroll-pay-bills.html
8. “Takeaways from America's second-largest bank failure” CNN, 11 Mar. 2023, https://www.cnn.com/2023/03/11/business/svb-collapse-roundup-takeaways/index.html
9. “Silicon Valley Bank failure signals widespread risk amid high interest rates” Markets Insider, 11 Mar. 2023, https://markets.businessinsider.com/news/stocks/silicon-valley-bank-failure-collapse-interest-rate-hikes-financial-risks-2023-3
