In a time of economic uncertainty, the collapse of Silicon Valley Bank (SVB) is a major blow to the tech industry.[0] On March 8, SVB’s parent company, SVB Financial Group, announced it had sold $21 billion of assets at a $1.8 billion loss, and was going to sell $1.75 billion worth of shares to help plug that hole.[1] This caused panic among SVB’s clients, leading to a bank run and leading to the Federal Deposit Insurance Corporation (FDIC) taking control of the bank.
SVB had a business model that was heavily concentrated in the tech industry, both venture capital and private equity, and so was more exposed to potential losses than other banks.[2] As a result, when the tech industry started to falter, it very quickly became a problem for the bank.[2] Moreover, because the FDIC normally only insures up to $250,000 of deposits, many customers who had more than that in SVB were in a bind.[3]
In response, the Treasury Department, the Federal Reserve, and the FDIC announced that they were taking “decisive actions” to protect the economy and shore up confidence in the banking system.[4] The representatives promised that all of SVB’s depositors would be able to access their funds the following day, not just those with deposits up to the FDIC-guaranteed $250,000.[4] On Sunday, New York regulators closed Signature Bank, which had begun offering crypto services, and the federal government stated that all depositors’ funds would be safeguarded.[4] The Fed said it was also going to open up a facility to make funding available for other financial institutions in the form of one-year loans to try to limit contagion across the banking sector and to stave off other bank runs.[4]
The collapse of SVB is the second-largest bank failure in US history and the largest since Washington Mutual went under in 2008.[5] It has sent shock waves across the tech sector, and while smaller depositors are safe, many customers who had more money in the bank have been left in a difficult situation. The FDIC, Treasury Department and the Fed have taken measures to protect the economy and shore up confidence in the banking system, but the long-term effects of the collapse of SVB are still to be seen.
0. “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
1. “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
2. “What is Silicon Valley Bank? The bank’s collapse, explained.” Vox.com, 15 Mar. 2023, https://www.vox.com/technology/23634433/silicon-valley-bank-collapse-silvergate-first-republic-fdic
3. “Silicon Valley Bank Bailout is Socialism for the Rich” Washington Free Beacon, 13 Mar. 2023, https://freebeacon.com/columns/silicon-valley-bank-bailout-is-socialism-for-the-rich
4. “Silicon Valley Bank bailout: Did the government just bail out SVB and Signature?” Vox.com, 13 Mar. 2023, https://www.vox.com/money/2023/3/13/23638417/svb-bank-bailout-signature-fed-fdic-treasury-janet-yellen
5. “Gavin Newsom hides ties to failed Silicon Valley Bank in statement praising Biden’s bailout” Fox News, 15 Mar. 2023, https://www.foxnews.com/politics/gavin-newsom-hides-client-failed-silicon-valley-bank-statement-praising-bailout