Silicon Valley Bank Collapses, Prompting Global Reckoning and Unprecedented Government Intervention
Silicon Valley Bank, a pillar of the startup world, collapsed last week, prompting a global reckoning at venture capital and private equity firms. This marks the second Silicon Valley bank collapse in the past week and has raised fears of a banking crisis. The cause of the collapse was a run on the bank after it failed to raise capital, leaving nearly $175 billion in customer deposits at risk.
The Federal Deposit Insurance Corporation (FDIC) shut down the 16th largest bank in the U.S. on Friday, making it the largest bank failure since the 2008 financial crisis. The FDIC is acting as a receiver and is liquidating the bank's assets to pay back customers, including depositors and creditors.[0] However, FDIC insurance only covers up to $250,000, meaning that many startups may lose substantial amounts.[1]
The Biden administration has since approved an extraordinary intervention, stating that all depositors at the failed Silicon Valley Bank will have access to all their money.[2] The collapse of SVB is the second largest bank failure in American history, and was caused by a combination of the pandemic bull run inflating the value of tech startups and their funds, and an ill-advised bet on interest rates.[3]
SVB had invested deposits in long-term assets such as Treasury bonds, which lost value when the Federal Reserve raised interest rates.[4] This led to depositors withdrawing $42 billion, rendering the financial institution insolvent.[3] President Biden has emphasized that no losses will be borne by taxpayers related to the government’s intervention, but some are skeptical.[5]
As of the end of December 2022, Silicon Valley Bank had approximately $209 billion in total assets and about $174.5 billion in total deposits.[6] The bank had been servicing 65 percent of existing tech startups and many of the most prominent venture capital firms, making its collapse a major setback for the tech industry.[3]
0. “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
1. “SVB's Depositors Were Bailed Out. Why It's the Right Move.” Barron's, 13 Mar. 2023, https://www.barrons.com/articles/svb-depositors-bailout-fdic-fed-db7cfda0
2. “Signature Bank's collapse could deal a blow to cryptocurrency industry” The Washington Post, 13 Mar. 2023, https://www.washingtonpost.com/technology/2023/03/13/signature-bank-collapse-crypto/
3. “Silicon Valley Bank's failure, the government's depositor rescue, and venture capitalists' incredible tantrum.” Slate, 13 Mar. 2023, https://slate.com/technology/2023/03/silicon-valley-bank-rescue-venture-capital-calacanis-sacks-ackman-tantrum.html
4. “Republicans Have Found a Culprit for SVB’s Collapse” The Atlantic, 13 Mar. 2023, https://www.theatlantic.com/ideas/archive/2023/03/republicans-svb-collapse-wokeness-esg-dei/673378/
5. “The tech industry avoided an ‘extinction-level event,' but it's not unscathed” CNN, 13 Mar. 2023, https://www.cnn.com/2023/03/13/tech/tech-industry-relief-silicon-valley-bank/index.html
6. “PR-16-2023 3/10/2023” FDIC, 12 Mar. 2023, https://www.fdic.gov/news/press-releases/2023/pr23016.html
