What Weve Learned, and Havent, One Year After SVBs Collapse

At the end of 2022, SVB was the 16th-largest bank in the United States with $209 billion in assets. Prior to the failure of SVB, the most recent bank failures occurred in October 2020, when both Almena State Bank in Kansas and First City Bank of Florida were taken over by the FDIC. SVB, as it’s known, was the biggest U.S. lender to fail since the 2008 global financial crisis – and the second-biggest ever. Silicon Valley Bank, which catered to the tech industry for three decades, collapsed on March 10, 2023, after the Santa Clara, California-based lender suffered from an old-fashioned bank run.

The swift collapse of Silicon Valley Bank, explained

The longest stretch in US history without a bank failure was from 2004 to 2007, and, well, you know what happened after that. The overall banking industry is likely fine, and again, SVB probably would have made it through had everybody not freaked out at the same time. That said, SVB’s collapse isn’t great, especially for the people who are going to be stuck holding the bag. There continue to be concerns about the health of the broader banking system. Silicon Valley Bank met its demise largely as the result of a good old-fashioned bank run after signs of trouble began to emerge in the second week of March. The bank takes deposits from clients and invests them in generally safe securities, like bonds.

Who Were the Main Investors in Silicon Valley Bank?

While the FDIC has guaranteed deposits of up to $250,000, depending on the size of the company, that money wouldn’t go very far. This doesn’t just apply to companies that deposited cash with SVB — it’s also a question for companies using other SVB instruments, like revolver loans or credit cards. Part of SVB’s specific problem is that it was so concentrated in its business. SVB catered to venture capital and private equity — as that sector has done well over the past decade, so has SVB.

• On Monday, the Wall Street Journal reported that FDIC officials told senators they planned to try to auction the failed bank again.
• Its collapse is the biggest since the 2008 global financial crisis.
• Shares fell by more than 60% on Thursday after news emerged that the bank needed to raise capital, and trading was halted Friday after another 60% plunge in premarket activity.
• Pershing Square Holdings Ltd. founder Bill Ackman has proposed a US government bailout to save SVB.
• This announcement sent customers and investors into a frenzy, with panic quickly spreading and causing a run on the bank.

Impact on Depositors and Investors

As more and more homebound people spent money on tech gadgets and similar items, tech companies used SVB to hold their cash, much of it used for payrolls and business expenses. The first was that thousands of British tech companies that banked with SVB were suddenly going to be unable to pay their staff – and most of these businesses would quickly go bust if they couldn’t access their own money. WIth almost a million people working for digital startups in London, that’s a lot of families that were facing an uncertain future.

If the threshold was never changed, SVB would have been more closely watched by regulators. During a poker game, Bill Biggerstaff and Robert Medearis came up with the idea for Silicon Valley Bank. And in 1983, the two, along with the gdmfx forex broker gdmfx review gdmfx information bank’s CEO Roger Smith, opened the first branch in San Jose, California. It went public in 1988 and, in 1989, moved to Menlo Park in an effort to cement its presence in the venture capital world.

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At the root of SVB’s problems there were ill-fated investment decisions. Often, he said, SVB tied a company’s loan to an executive’s mortgage — and that a default on one would trigger a default on the other. HSBC Holdings Plc announced on March 13 that it would buy the U.K. Arm of the company, Silicon Valley Bank UK Limited, for 1 pound.

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These assets tend to have relatively low returns but also relatively low risk. Meanwhile fintech entrepreneur Philip Kelvin, co-founder and CEO at business BNPL provider Tranch, hailed the Government’s intervention for preventing “a catastrophic blow to the innovation economy”. “The UK’s innovation economy not only would have collapsed, but future generations would be even more risk adverse to entrepreneurship – a trait the UK needs more than ever,” he said this week. The second knock-on effect of SVB’s implosion was on other Trade silver banks.

• A third of Y Combinator companies won’t be able to make payroll in the next 30 days, according to YC CEO Garry Tan.
• According to its website, it did business with nearly half of all US venture capital-backed startups, and 44% of US venture-backed tech and health-care companies that went public last year.
• On Wednesday evening, SVB announced it was planning to raise $2 billion to “strengthen its financial position” after suffering losses amid the broader slowdown in tech sector.
• A characteristic of bonds and similar securities is that when yields or interest rates go up, prices go down, and vice versa.
• The lessons learned tie directly into diversification, as consumers and especially corporates eye the in-place FDIC insurance limits and spread what we might term “account risk” across a variety of holders.
• It said that deposits have been leaving the bank faster than expected this year.

Very quickly, the ripple effect of SVB could have spread to other banks – and seen a run on those banks too, with potentially vast consequences for the wider economy. Suddenly people started worrying about whether SVB was solvent – and what happened next was the first old-fashioned bank run of the hyper modern digital age. This proved to be a massive miscalculation, because when central banks started hiking up interest rates, the value of these investments dropped sharply. You’d assume that having lots of deposit cash would be a good thing for a bank, but it does create the problem of what to do with all that wonga. The lessons learned tie directly into diversification, as consumers and especially corporates eye the in-place FDIC insurance limits and spread what we might term “account risk” across a variety of holders.

In most cases, this would mean account holders would lose any money above that threshold. As this was happening, some of Silicon Valley Bank’s customers—many of whom are in the technology industry—hit financial troubles, and many began to withdraw funds from their accounts. On Thursday alone, SVB’s customers tried to withdraw over £34 billion, meaning that by the end of that day, the bank was almost £800 million in the red. Financial regulators stepped in, and the startups who had money at SVB were today’s stock market performance and economic data suddenly in a dire situation. The FDIC has been in the spotlight in ways that it had not been in years, certainly since the financial crisis of earlier in the millennium. In the aftermath of SVB, the question of deposit insurance — how much and who should get it — has been hotly debated in finance.