The Collapse of Silicon Valley Bank: Challenges for Tech Companies and Financial Institutions
Silicon Valley Bank, a stalwart of the tech industry for nearly four decades, collapsed on Friday after regulators took control of the California-based financial institution.[0] Founded in 1983, SVB specialized in banking for tech startups and provided financing for almost half of US venture-backed technology and health care companies.[1] The bank grew rapidly during the start-up boom that followed the 2008 financial crisis, but the recent slowdown in venture capital and tech industries caused a sharp drop in deposits, leading to a cash crunch.[2]
In response, SVB announced plans to raise more than $2 billion in capital to offset losses from bond sales, but the move only further spooked investors.[3] Shares tumbled by 60% in Thursday trading, and another 20% in aftermarket trading.[4] On Friday, the government stepped in and took control of the lender.
The Federal Deposit Insurance Corporation (FDIC) said depositors will be able to access up to $250,000 of their funds by Monday morning. Any amount above that will result in a “receivership certificate.”[5] In spite of this, the Federal Deposit Insurance Corporation (FDIC) only guarantees bank deposits up to a maximum of $250,000 – yet the customers of Silicon At the end of last year, a significant portion of SVB's funds were not protected by insurance, with more than 93% of domestic deposits falling into this category, as revealed in a regulatory filing.[6]
Tech companies have experienced a difficult time as of late, with stock prices dropping drastically and countless job losses, now compounded by the failure of Silicon Valley Bank.[5] The rapid expansion seen in the past has now diminished, leading to an instability that does not match up with the current state of the U.S. economy.[2]
The failure of SVB Financial could have far-reaching consequences, as venture-backed companies rely on SVB for loans and holding their operating cash.[7] The bank had more than $200 billion in assets when it failed, and its collapse leaves open gaping questions among startups about cash flow and access.[8] Other financial institutions have been feeling tremors from SVB’s fall, and Signature Bank, prominent in the crypto world, saw its shares drop over 30% while shares of First Republic, a regional bank, fell by 23% by midday Friday.[4]
0. “Where Were the Regulators as SVB Crashed?” The Wall Street Journal, 11 Mar. 2023, https://www.wsj.com/articles/where-were-the-regulators-as-svb-crashed-35827e1a
1. “How does a bank collapse in 48 hours? A timeline of the SVB fall” CNN, 11 Mar. 2023, https://www.cnn.com/2023/03/11/business/svb-bank-collapse-explainer-timeline/index.html
2. “Silicon Valley Bank collapse leaves start-ups scrambling to pay workers” The Washington Post, 11 Mar. 2023, https://www.washingtonpost.com/technology/2023/03/11/silicon-valley-bank-startups-payroll/
3. “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
4. “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
5. “Silicon Valley Bank failure could wipe out ‘a whole generation of startups'” NPR, 11 Mar. 2023, https://www.npr.org/2023/03/11/1162805718/silicon-valley-bank-failure-startups
6. “SVB’s 44-Hour Collapse Was Rooted in Treasury Bets During Pandemic” Yahoo News, 11 Mar. 2023, https://news.yahoo.com/svb-spectacularly-fails-unthinkable-heresy-222710493.html
7. “Silicon Valley Bank: What you need to know as the crisis sparks stock market chaos” Markets Insider, 10 Mar. 2023, https://markets.businessinsider.com/news/stocks/svb-silicon-valley-bank-collapse-jpmorgan-morgan-stanley-bank-stocks-2023-3
8. “Silicon Valley Bank Collapse Leaves Tech Industry Scrambling For Answers” Crunchbase News, 10 Mar. 2023, https://news.crunchbase.com/venture/silicon-valley-bank-impact/
