SVB is Sillicon Valley Bank. They were founded in 1983. SVB failed this past Friday, March 10th, 2023, and was overtaken by federal regulators.
They were not your typical bank as they specialized in tech startups and had actually financed nearly one-half of all healthcare and tech-backed US venture companies. The FDIC stated that they were ranked in the top twenty American commercial banks across the USA and had over two hundred nine billion dollars ($209B) of assets as of the end of 2022. So, what happened? And will it be a repeat of what we saw before?
As the Federal Reserve Bank continued to raise interest rates in an effort to bring down inflation the tech stocks borrowing power was truncated. Long-term bonds also suffered from this movement. SVB had about twenty-one billion dollars invested in their bond portfolio that had been earning 1.79 percent interest and the new ten-year rate is 3.9 percent. That is a bitter pill to swallow.
Venture capital began to erode too and many startups had to take funds out of SVB to stay afloat. As these and other factors blended together SVB had scads of unrealized losses. On top of those sliding losses, many other customers of SVB began to withdraw their funds leaving the back with little working capital.
In order to stave off the bleeding SVB attempted to sell off many of its securities for a loss this past Wednesday. To try to balance that shift they sold 2.2 Billion dollars of new shares, but by then there was already mass panic amongst investors.
Thursday morning, as the markets opened around the globe, their stock tumbled and fell. This momentum also affected the prices of other bank stocks as investors believed they might quickly revisit the collapse of 2007 and 2008.
By Friday morning the trading for SVB stock was stopped which hindered their possibility of finding anyone to bail them out. The regulators in California shut them down and put them under receivership with the FDIC (Federal Deposit Insurance Corporation).
Senator Elizabeth Warren
The Feds not wanting another landslide said it was not something that might affect the broader markets and other banks as this scenario previously had. The FDIC said that by today, Monday, March 13, 2023 all insured deposits would have complete access to their funds and those with uninsured funds would receive an “advance dividend next week”.
Despite the reassurances of the Feds some of the smaller banks that have close ties to these cash-deficient industries that fund crypto and tech may also falter. Can we afford not to intercede?
References:
https://sfstandard.com/business/photos-silicon-valley-bank-headquarters-friday-morning/
https://www.nbcnews.com/politics/congress/silicon-valley-bank-collapse-puts-new-spotlight-2018-bank-deregulation-rcna74655