Silicon Valley Bank Closure Causes Ripple Effect in Tech Investment Industry
Silicon Valley Bank (SVB), a major bank in the technology startup space, has been struggling with mounting losses and a liquidity crisis, leading to its closure and takeover by the Federal Deposit Insurance Corporation (FDIC).[0] SVB had developed relationships with the venture capital community over its four decades in existence, and its failure has caused a ripple effect in the tech investment industry.[1]
SVB's share price plummeted more than 60% to $106.04 following the announcement of its $1.8 billion loss and $2.25 billion capital raise.[2] The bank had unsuccessfully attempted a $1.25 billion share sale earlier this week, and the subsequent drop in deposits has caused a run on the bank. Billionaire hedge fund manager Bill Ackman has compared SVB to Bear Sterns, the first lender to collapse at the start of the 2007-2008 global financial crisis.[3]
The 10-year Treasury yield dropped 10 basis points to 3.82%, and the 6-month T-bill yield dipped 3 basis points to 5.28%.[4] This spike in rates has weighed on stocks and put pressure on SVB's bond portfolio, leading to a $120 billion total assets and $175 billion total deposits as of the end of last year.[4]
Numerous venture capital funds have advised companies in their portfolios to move their funds out of SVB to avoid the risk of being caught up in the potential failure of the bank.[5] Silicon Valley Bank CEO Greg Becker tried to calm tech investors and startups during a Thursday Zoom call, but the bank's collapse has caused a cash crunch in Silicon Valley and could have a domino effect on the rest of the banking sector.[6]
The FDIC is now acting as a receiver and will liquidate the bank’s assets to pay back its customers, including depositors and creditors.[7] The situation at Silicon Valley Bank has been worsened by more startups feeling pinched for cash and needing to withdraw funds, and the failure of SVB could undermine the broader banking system and start a new meltdown.[7]
0. “Silicon Valley Bank shut down by regulators” Fox Business, 10 Mar. 2023, https://www.foxbusiness.com/markets/silicon-valley-bank-shut-down-regulators-fdic
1. “Ackman calls on US government to consider Silicon Valley Bank bailout” Business Insider, 10 Mar. 2023, https://www.businessinsider.com/silicon-valley-bank-bill-ackman-billionaire-government-bailout-svb-2023-3
2. “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
3. “Silicon Valley Bank collapse has echoes of 2008. Here's why things are different this time” CNN, 10 Mar. 2023, https://www.cnn.com/2023/03/10/investing/svb-banking-crisis-what-next/index.html
4. “Dow tumbles more than 200 points as Silicon Valley Bank failure spooks investors: Live updates” CNBC, 10 Mar. 2023, https://www.cnbc.com/2023/03/09/stock-market-today-live-updates.html
5. “Venture capitalists urge startups to withdraw funds from crisis-laden Silicon Valley Bank” CNBC, 10 Mar. 2023, https://www.cnbc.com/2023/03/10/vcs-urge-startups-to-withdraw-funds-from-silicon-valley-bank.html
6. “Silicon Valley Bank CEO Tells VC Clients to ‘Stay Calm'” The Information, 9 Mar. 2023, https://www.theinformation.com/articles/silicon-valley-bank-ceo-tells-vc-clients-to-stay-calm
7. “Silicon Valley Bank collapse sends tech startups scrambling” CNN, 10 Mar. 2023, https://www.cnn.com/2023/03/10/tech/silicon-valley-bank-tech-panic/index.html
