Silicon Valley Bank (SVB), the 16th largest bank in the United States, reportedly collapsed on Friday, 10 March 2023. The fall of the bank happened in just 48 hours starting on Wednesday when it announced the bank’s recent move. This announcement resulted in a bank run where many of its customers tried to withdraw money from SVB. However, the reserve capital of SVB is not enough to cover it and ultimately fall.
Previously, the US had the zero interest rate policy (ZIRP), which caused many banks, including SVB to operate on bonds investment. Normally, this will yield profit if the interest rate is low. However, since the US had to increase interest rates to combat inflation, the bond value dropped and caused the banks many losses that have yet to be realized. In a recent year, the SVB decided to sell its bonds to make up for the losses. Coincidentally at the same time, it also tried to announce it to reassure customers and investors that the bank is fine. However this resulted in a backlash that caused the collapse.
On the same day the collapse was happening, California regulators immediately put SVB under control of the US Federal Deposit Insurance Corporation (FDIC), to try to liquidate the customer’s assets and pay back all of it. However FDIC can only cover USD 250.000 per company and this still left many of its customers in a state of confusion to make ends meet.
Silicon Valley Bank is a massive service enabling start ups industries as it has more than 2,500 venture capital firms. The fall of the bank ensues chaos on many sides, especially the tech start-ups industries as they scramble to try to collect the funds that were stored in the bank. However, none of the money can be accessed. Following this, many of them questioned how to get their employee’s paycheck as well as cover the expenses of the company if none of them can have access to their funds.
However, not all startups are left in a loss. Brex, a startup that specializes in providing financial services to other startups received billions of deposits on Thursday and unveiled a new service on Friday to help other startups. Many other venture funds also helped in providing whatever they can, from funds to information in hopes that startups can stay alive until somehow it can get all of its money back.
The rapidly unfolding fallout at Silicon Valley Bank comes at a challenging moment for the tech industry. Before SVB fell, the tech industry had fallen into a steep cost-cutting season that was marked by massive layoffs and focused on “efficiency.” Billionaire investor, Bill Ackman, said in his post that Silicon Valley Bank “failure” could “destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating-cash.”
Source: NYTimes, CNN Indonesia