{"id":2223,"date":"2023-03-13T13:02:41","date_gmt":"2023-03-13T18:02:41","guid":{"rendered":"https:\/\/embarrdowns.com\/the-collapse-of-silicon-valley-bank-a-warning-to-banks-everywhere\/"},"modified":"2023-03-13T13:02:42","modified_gmt":"2023-03-13T18:02:42","slug":"the-collapse-of-silicon-valley-bank-a-warning-to-banks-everywhere","status":"publish","type":"post","link":"https:\/\/embarrdowns.com\/the-collapse-of-silicon-valley-bank-a-warning-to-banks-everywhere\/","title":{"rendered":"The Collapse of Silicon Valley Bank: A Warning to Banks Everywhere"},"content":{"rendered":"

Silicon Valley Bank, the tech industry’s go-to lender, collapsed Friday after its warning of a cash crunch spooked investors and prompted a run on the bank.[0]<\/a><\/sup> The California Department of Financial Protection and Innovation shuttered the bank and appointed the Federal Deposit Insurance Corporation (FDIC) as a receiver.[1]<\/a><\/sup><\/p>\n

The cause of SVB’s downfall can be traced to disruption brought about by increased interest rates.[2]<\/a><\/sup> With the unfavourable climate for IPOs and private fundraising causing startup clients to withdraw their deposits to keep their companies afloat, SVB experienced a lack of capital.[2]<\/a><\/sup> The bank reported late Wednesday that it had been compelled to sell its accessible bonds at a $1.8 billion deficit.[2]<\/a><\/sup><\/p>\n

Depositors at smaller banks, such as SVB, are only formally insured up to $250,000. Over that amount, as the FDIC announced on Friday when it shuttered SVB, depositors are treated like ordinary creditors.[3]<\/a><\/sup> It is suggested that when a bank such as SVB collapses, major depositors may only obtain a fraction of their money after all other debtors have been paid.[3]<\/a><\/sup><\/p>\n

The collapse is a harsh reminder of the risk posed by banking on one industry. SVB’s business model was heavily concentrated in venture capital and private equity, and when that sector took a hit, so did the bank.[4]<\/a><\/sup> This also calls into question the practice of venture capitalists requiring portfolio companies to bank with SVB and offering them attractive terms on mortgages and wealth management services.[5]<\/a><\/sup><\/p>\n

The FDIC has taken control of SVB and customers will have access to their insured deposits on Monday.[6]<\/a><\/sup> The agency\u2019s insurance only covers deposits up to $250,000, though, and many startups kept far more than that with the bank.<\/p>\n

The SVB collapse is a warning to all banks, but especially smaller ones that have concentrated on a single industry. It is a reminder that even the most successful institutions can face catastrophic losses if they don\u2019t diversify their portfolios and manage their risk.<\/p>\n

0. <\/span>“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<\/a><\/a><\/p>\n

1. <\/span>“My Trade Amid SVB’s Fall? An ‘Insurance Policy’ on BofA I Hope Doesn’t Pay Off” RealMoney, 12 Mar. 2023, https:\/\/realmoney.thestreet.com\/investing\/stocks\/my-bank-trade-an-insurance-policy-on-bofa-i-hope-doesn-t-pay-off-16118056<\/a><\/a><\/p>\n

2. <\/span>“Here’s how the second-biggest bank collapse in U.S. history happened in just 48 hours” CNBC, 10 Mar. 2023, https:\/\/www.cnbc.com\/2023\/03\/10\/silicon-valley-bank-collapse-how-it-happened.html<\/a><\/a><\/p>\n

3. <\/span>“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<\/a><\/a><\/p>\n

4. <\/span>“What is Silicon Valley Bank? The bank\u2019s collapse, explained.” Vox.com, 10 Mar. 2023, https:\/\/www.vox.com\/technology\/23634433\/silicon-valley-bank-collapse-silvergate-first-republic-fdic<\/a><\/a><\/p>\n

5. <\/span>“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<\/a><\/a><\/p>\n

6. <\/span>“Mark Cuban urges Fed to buy Silicon Valley Bank debt \u2018immediately,\u2019 says it\u2019s \u2018not the wealthy taking the hit\u2019” Fortune, 11 Mar. 2023, https:\/\/fortune.com\/2023\/03\/11\/mark-cuban-fed-buy-silicon-valley-bank-debt-immediately-not-wealthy-taking-hit\/<\/a><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Silicon Valley Bank, the tech industry’s go-to lender, collapsed Friday after its warning of a cash crunch spooked investors and prompted a run on the bank.[0]<\/a><\/sup> The California Department of Financial Protection and Innovation shuttered the bank and appointed the Federal Deposit Insurance Corporation (FDIC) as a receiver.[1]<\/a><\/sup><\/p>\n

The cause of SVB’s downfall can be traced to disruption brought about by increased interest rates.[2]<\/a><\/sup> With the unfavourable climate for IPOs and private fundraising causing startup clients to withdraw their deposits to keep their companies afloat, SVB experienced a lack of capital.[2]<\/a><\/sup> The bank reported late Wednesday that it had been compelled to sell its accessible bonds at a $1.8 billion deficit.[2]<\/a><\/sup><\/p>\n

Depositors at smaller banks, such as SVB, are only formally insured up to $250,000. Over that amount, as the FDIC announced on Friday when it shuttered SVB, depositors are treated like ordinary creditors.[3]<\/a><\/sup> It is suggested that when a bank such as SVB collapses, major depositors may only obtain a fraction of their money after all other debtors have been paid.[3]<\/a><\/sup><\/p>\n

The collapse is a harsh reminder of the risk posed by banking on one industry. SVB’s business model was heavily concentrated in venture capital and private equity, and when that sector took a hit, so did the bank.[4]<\/a><\/sup> This also calls into question the practice of venture capitalists requiring portfolio companies to bank with SVB and offering them attractive terms on mortgages and wealth management services.[5]<\/a><\/sup><\/p>\n

The FDIC has taken control of SVB and customers will have access to their insured deposits on Monday.[6]<\/a><\/sup> The agency\u2019s insurance only covers deposits up to $250,000, though, and many startups kept far more than that with the bank.<\/p>\n

The SVB collapse is a warning to all banks, but especially smaller ones that have concentrated on a single industry. It is a reminder that even the most successful institutions can face catastrophic losses if they don\u2019t diversify their portfolios and manage their risk.<\/p>\n

0. <\/span>“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<\/a><\/a><\/p>\n

1. <\/span>“My Trade Amid SVB’s Fall? An ‘Insurance Policy’ on BofA I Hope Doesn’t Pay Off” RealMoney, 12 Mar. 2023, https:\/\/realmoney.thestreet.com\/investing\/stocks\/my-bank-trade-an-insurance-policy-on-bofa-i-hope-doesn-t-pay-off-16118056<\/a><\/a><\/p>\n

2. <\/span>“Here’s how the second-biggest bank collapse in U.S. history happened in just 48 hours” CNBC, 10 Mar. 2023, https:\/\/www.cnbc.com\/2023\/03\/10\/silicon-valley-bank-collapse-how-it-happened.html<\/a><\/a><\/p>\n

3. <\/span>“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<\/a><\/a><\/p>\n

4. <\/span>“What is Silicon Valley Bank? The bank\u2019s collapse, explained.” Vox.com, 10 Mar. 2023, https:\/\/www.vox.com\/technology\/23634433\/silicon-valley-bank-collapse-silvergate-first-republic-fdic<\/a><\/a><\/p>\n

5. <\/span>“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<\/a><\/a><\/p>\n

6. <\/span>“Mark Cuban urges Fed to buy Silicon Valley Bank debt \u2018immediately,\u2019 says it\u2019s \u2018not the wealthy taking the hit\u2019” Fortune, 11 Mar. 2023, https:\/\/fortune.com\/2023\/03\/11\/mark-cuban-fed-buy-silicon-valley-bank-debt-immediately-not-wealthy-taking-hit\/<\/a><\/a><\/p>\n","protected":false},"author":3,"featured_media":2222,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[47],"tags":[],"_links":{"self":[{"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/posts\/2223"}],"collection":[{"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/comments?post=2223"}],"version-history":[{"count":0,"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/posts\/2223\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/media\/2222"}],"wp:attachment":[{"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/media?parent=2223"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/categories?post=2223"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/tags?post=2223"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}