{"id":2472,"date":"2023-03-17T09:33:06","date_gmt":"2023-03-17T14:33:06","guid":{"rendered":"https:\/\/embarrdowns.com\/the-collapse-of-silicon-valley-bank-implications-for-the-u-s-banking-system\/"},"modified":"2023-03-17T09:33:06","modified_gmt":"2023-03-17T14:33:06","slug":"the-collapse-of-silicon-valley-bank-implications-for-the-u-s-banking-system","status":"publish","type":"post","link":"https:\/\/embarrdowns.com\/the-collapse-of-silicon-valley-bank-implications-for-the-u-s-banking-system\/","title":{"rendered":"The Collapse of Silicon Valley Bank: Implications for the U.S. Banking System"},"content":{"rendered":"

On Friday, March 10th, 2023, Silicon Valley Bank (SVB) collapsed in the second-largest bank failure in U.S. history.[0]<\/a><\/sup> The 48-hour collapse was the result of a bank run, coming on the heels of an imbalance in the publicly reported numbers in assets and liabilities, and large unrealized losses on government securities.[1]<\/a><\/sup> The collapse of Silicon Valley Bank has led to a liquidity backstop from the U.S. Treasury Department, Federal Reserve, and FDIC to prevent bank runs across small and medium-sized banks.<\/p>\n

SVB, which was named after the birthplace of the world\u2019s biggest tech companies, specialized in meeting the credit needs of technology startup companies and venture capital firms. It serviced 65 percent of existing startups, and the majority of the most prominent venture capital firms.[2]<\/a><\/sup> After the Federal Reserve raised interest rates, the value of securities dropped, leading to the bank\u2019s downfall.[1]<\/a><\/sup><\/p>\n

The SVB Financial Group owns both a fund management business (SVB Capital) and an investment-banking advisory and research arm (SVB Securities).[3]<\/a><\/sup> SVB Capital managed $9.5 billion in assets across a variety of strategies, including direct VC investments and fund-of-funds.[3]<\/a><\/sup> SVB has long been an influential supplier of venture debt for venture capital-funded startups, with a capital portfolio of around $6.71 billion in venture loans. Previously unreported documents show SVB Capital invested $234 million in Sequoia Capital, $173 million in Andreessen Horowitz funds, and $145 million in fintech-focused Ribbit Capital\u2019s funds.[4]<\/a><\/sup><\/p>\n

The collapse of SVB has led to a lot of discussion and opinion regarding the banking system. Big banks are in better financial shape than small ones; however, many regional banks have large amounts of uninsured deposits above the $250,000 FDIC limit.[5]<\/a><\/sup> The collapse of SVB may have resulted from a perfect storm of ugly events but it was also emblematic of a startup ecosystem and venture-capital apparatus that are too unstable, too risky, and too unmoored from reality. It appears that Silicon Valley Bank took some bad risks, and it is hard to say exactly what those bad decisions were.[6]<\/a><\/sup> SVB over-leveraged its portfolio and took imprudent duration risk, and ultimately, it blew them up.<\/p>\n

The FDIC has taken control of SVB and set up another bank where depositors can access their money.[7]<\/a><\/sup><\/p>\n

0. <\/span>“Silicon Valley Bank’s Distress Wasn’t Reflected in Credit Ratings” The Wall Street Journal, 17 Mar. 2023, https:\/\/www.wsj.com\/articles\/silicon-valley-banks-distress-wasnt-reflected-in-credit-ratings-93cd9dff<\/a><\/a><\/p>\n

1. <\/span>“What to Know About Trump-Era Bank Deregulation and Bank Failures” FactCheck.org, 16 Mar. 2023, https:\/\/www.factcheck.org\/2023\/03\/what-to-know-about-trump-era-bank-deregulation-and-bank-failures\/<\/a><\/a><\/p>\n

2. <\/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

3. <\/span>“SVB asset sale overview: ‘Largest footprint in tech ecosystem'” PitchBook News & Analysis, 16 Mar. 2023, https:\/\/pitchbook.com\/news\/articles\/asset-liquidations-silicon-valley-bank<\/a><\/a><\/p>\n

4. <\/span>“SVB’s $9.5 Billion Venture Unit Included Large Investments in Andreessen, Sequoia, Documents Show” The Information, 16 Mar. 2023, https:\/\/www.theinformation.com\/articles\/svbs-9-5-billion-venture-unit-included-large-investments-in-andreessen-sequoia-documents-show<\/a><\/a><\/p>\n

5. <\/span>“Government fear-mongering over Silicon Valley Bank \u2014 and how to profit” New York Post , 15 Mar. 2023, https:\/\/nypost.com\/2023\/03\/15\/government-fear-mongering-over-silicon-valley-bank-and-how-to-profit\/<\/a><\/a><\/p>\n

6. <\/span>“PR-16-2023 3\/10\/2023” FDIC, 12 Mar. 2023, https:\/\/www.fdic.gov\/news\/press-releases\/2023\/pr23016.html<\/a><\/a><\/p>\n

7. <\/span>“Silicon Valley Bank collapse and other key moments in the week that rocked banks” NPR, 17 Mar. 2023, https:\/\/www.npr.org\/2023\/03\/17\/1163911866\/5-big-moments-from-the-week-that-rocked-the-banking-system<\/a><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

On Friday, March 10th, 2023, Silicon Valley Bank (SVB) collapsed in the second-largest bank failure in U.S. history.[0]<\/a><\/sup> The 48-hour collapse was the result of a bank run, coming on the heels of an imbalance in the publicly reported numbers in assets and liabilities, and large unrealized losses on government securities.[1]<\/a><\/sup> The collapse of Silicon Valley Bank has led to a liquidity backstop from the U.S. Treasury Department, Federal Reserve, and FDIC to prevent bank runs across small and medium-sized banks.<\/p>\n

SVB, which was named after the birthplace of the world\u2019s biggest tech companies, specialized in meeting the credit needs of technology startup companies and venture capital firms. It serviced 65 percent of existing startups, and the majority of the most prominent venture capital firms.[2]<\/a><\/sup> After the Federal Reserve raised interest rates, the value of securities dropped, leading to the bank\u2019s downfall.[1]<\/a><\/sup><\/p>\n

The SVB Financial Group owns both a fund management business (SVB Capital) and an investment-banking advisory and research arm (SVB Securities).[3]<\/a><\/sup> SVB Capital managed $9.5 billion in assets across a variety of strategies, including direct VC investments and fund-of-funds.[3]<\/a><\/sup> SVB has long been an influential supplier of venture debt for venture capital-funded startups, with a capital portfolio of around $6.71 billion in venture loans. Previously unreported documents show SVB Capital invested $234 million in Sequoia Capital, $173 million in Andreessen Horowitz funds, and $145 million in fintech-focused Ribbit Capital\u2019s funds.[4]<\/a><\/sup><\/p>\n

The collapse of SVB has led to a lot of discussion and opinion regarding the banking system. Big banks are in better financial shape than small ones; however, many regional banks have large amounts of uninsured deposits above the $250,000 FDIC limit.[5]<\/a><\/sup> The collapse of SVB may have resulted from a perfect storm of ugly events but it was also emblematic of a startup ecosystem and venture-capital apparatus that are too unstable, too risky, and too unmoored from reality. It appears that Silicon Valley Bank took some bad risks, and it is hard to say exactly what those bad decisions were.[6]<\/a><\/sup> SVB over-leveraged its portfolio and took imprudent duration risk, and ultimately, it blew them up.<\/p>\n

The FDIC has taken control of SVB and set up another bank where depositors can access their money.[7]<\/a><\/sup><\/p>\n

0. <\/span>“Silicon Valley Bank’s Distress Wasn’t Reflected in Credit Ratings” The Wall Street Journal, 17 Mar. 2023, https:\/\/www.wsj.com\/articles\/silicon-valley-banks-distress-wasnt-reflected-in-credit-ratings-93cd9dff<\/a><\/a><\/p>\n

1. <\/span>“What to Know About Trump-Era Bank Deregulation and Bank Failures” FactCheck.org, 16 Mar. 2023, https:\/\/www.factcheck.org\/2023\/03\/what-to-know-about-trump-era-bank-deregulation-and-bank-failures\/<\/a><\/a><\/p>\n

2. <\/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

3. <\/span>“SVB asset sale overview: ‘Largest footprint in tech ecosystem'” PitchBook News & Analysis, 16 Mar. 2023, https:\/\/pitchbook.com\/news\/articles\/asset-liquidations-silicon-valley-bank<\/a><\/a><\/p>\n

4. <\/span>“SVB’s $9.5 Billion Venture Unit Included Large Investments in Andreessen, Sequoia, Documents Show” The Information, 16 Mar. 2023, https:\/\/www.theinformation.com\/articles\/svbs-9-5-billion-venture-unit-included-large-investments-in-andreessen-sequoia-documents-show<\/a><\/a><\/p>\n

5. <\/span>“Government fear-mongering over Silicon Valley Bank \u2014 and how to profit” New York Post , 15 Mar. 2023, https:\/\/nypost.com\/2023\/03\/15\/government-fear-mongering-over-silicon-valley-bank-and-how-to-profit\/<\/a><\/a><\/p>\n

6. <\/span>“PR-16-2023 3\/10\/2023” FDIC, 12 Mar. 2023, https:\/\/www.fdic.gov\/news\/press-releases\/2023\/pr23016.html<\/a><\/a><\/p>\n

7. <\/span>“Silicon Valley Bank collapse and other key moments in the week that rocked banks” NPR, 17 Mar. 2023, https:\/\/www.npr.org\/2023\/03\/17\/1163911866\/5-big-moments-from-the-week-that-rocked-the-banking-system<\/a><\/a><\/p>\n","protected":false},"author":3,"featured_media":2471,"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\/2472"}],"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=2472"}],"version-history":[{"count":0,"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/posts\/2472\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/media\/2471"}],"wp:attachment":[{"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/media?parent=2472"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/categories?post=2472"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/tags?post=2472"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}