The Fall of Silicon Valley Bank

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The FALL of SILICON VALLEY BANK


The Second largest bank failure in US history

What happened?

US regulators closed the Silicon Valley Bank on March 10 and took control of its deposits, putting around $175 billion in customer deposits under the Federal Deposit Insurance Corporation's control.


The intensity of the plummet 

According to reports, the collapse of the Silicon Valley Bank marked the largest failure of a financial institution since Washington Mutual collapsed in 2008.

However, as per experts, this collapse would not lead to a financial crisis like in 2008 as its operations were confined to the tech sector and VC-backed companies.



Reason behind the downfall

The downturn in technology stocks and Federal Reserves' move to increase interest rates to fight inflation heavily impacted the Silicon Valley Bank.

During this period, the bank invested in bonds. As interest rates increased and bond prices declined, it started witnessing major losses on its long-term bond holdings.


Panic!

Credit rating agency Moody's Investor Service declared that the Silicon Valley Bank was at high risk after SVB reported its fourth-quarter results in early 2023.

Following this, the bank looked to sell $2 billion of its investments at a loss to improve the liquidity for its struggling balance sheet.


Mass withdrawal

Notably, more hedge funds and venture investors soon realised the Silicon Valley Bank's critical condition.

Depositors started rushing to withdraw funds, leading to a liquidity crunch, after which regulators shut down the bank.


Impact on the Banking sector

The US' four biggest banks lost a combined $52 billion the day before the Silicon Valley Bank collapse.

On March 10, other banking stocks saw double-digit drops, including Signature Bank (-23%), First Republic (-15%), and Silvergate Capital (-11%).

Regulators then went on to shut down the Signature Bank on March 12.


Impact on INDIA 

As per reports, more than 100 Indian start-ups have direct exposure to the Silicon Valley Bank, including nearly 60 YC-backed startups.

Gokul Rajaram, a board member at Pinterest and Coinbase, said that India-based founders don't know who to turn to as an alternate to the Silicon Valley Bank.


Before the chaos

Founded in 1983, California-based Silicon Valley Bank was the 16th-largest bank in the US at the time of its collapse.

It was considered a top player in the tech space, having thousands of US venture capital-backed startups as its customers.

As of 31 December 2022, it had assets of around $212 bn with clients like Shopify & Pinterest.



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