Silicon Valley Bank Failure: What Happened? What could it trigger?

Silicon Valley Bank (SVB) was once one of the most successful and innovative banks in the world. However, in 2020, SVB reported a net loss of $1.7 billion due to its failed investments in startups. This failure has caused a lot of confusion and questions among investors and financial experts alike. Over 40,000 of Silicon Valley Bank‘s depositors, according to a petition requesting regulators to intervene, are small companies. According to former Bridgewater executive and CEO of investment firm Unlimited Bob Elliot, decisions made by the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) regarding the future of Silicon Valley Bank may have an impact on regional banks throughout the United States and put trillions of dollars at risk of a bank run. In this article, we will take an overview of the factors that led to the failure of Silicon Valley Bank and examine how they can be avoided in the future

Silicon Valley Bank Failure: What Happened?

The closing of Silicon Valley Bank was announced by the California Department of Financial Protection and Innovation early on Friday. SVB transferred all FDIC-insured deposits to the Deposit Insurance National Bank of Santa Clara. The FDIC stated that uninsured depositors would get certificates for the sums of their uninsured money by March 13, while all insured depositors would have complete access to their insured deposits by that date. Following the disclosure of Silicon Valley Bank’s liquidity concerns, trading for numerous regional bank stocks, including SVB, Signature Bank, First Republic Bank, PacWest Bancorp, and Western Alliance Bancorp, had already been suspended. As of the writing, PacWest Bancorp was down 37%, First Republic 30%, Signature Bank 27%, Western Alliance 29%, and SVB was down 67% on a weekly basis. On Wednesday, Silicon Valley Bank abruptly stated that it was taking exceptional measures to strengthen its finances. The bank stated that it had borrowed $15 billion, sold off $21 billion of its most liquid assets, and tried to raise money by orchestrating a stock offering in an emergency. The news prompted a rush of withdrawals on Thursday as tech firms, who make up the vast majority of the bank’s clients, looked to transfer their assets to a more secure location. CNBC reports that SVB Financial, the parent company of Silicon Valley Bank, started looking to sell itself after failing to generate enough money to support its operations. Silicon Valley Bank was the 18th-largest bank in the United States by total assets at the time of its collapse.

What could it trigger?

According to data from the Fed, small banks in the US have $6.8 trillion in assets and $680 billion in equity as of February 2023. According to this scenario, the SBV situation would become a “main street crisis” if the tech bank failed, increasing the “danger of a run on thousands of local banks,”

According to a petition started by YCombinator CEO Garry Tan, roughly 40,000 of all Silicon Valley Bank depositors are small enterprises. The paper pleading with authorities “to step in and provide a backup for depositors” warns that “over 100,000 individuals could soon lose their employment if immediate action isn’t done.”According to a Bloomberg article citing persons familiar with the situation, FIDC and the Fed are allegedly debating the establishment of a fund to support further deposits at failing banks. The fund, which was created in reaction to the SVB collapse, aims to reassure depositors and calm their fears. One of the top 20 banks in the US, Silicon Valley Bank offers banking services to numerous entrepreneurial firms that support cryptocurrencies. With $2.85 billion from Andreessen Horowitz (a16z), $1.72 billion from Paradigm, and $560 million from Pantera Capital, blockchain venture capitalists’ assets reached more than $6 billion in the bank.

How To Prepare For The Next Wave of Fintech Disruption?

As the world of finance continues to evolve, it is essential for businesses to stay ahead of the curve. With the advent of new technologies such as AI and blockchain, there is a growing need for companies to prepare for the next wave of fintech disruption. This means understanding how these new technologies are impacting traditional banking processes and finding ways to use them in order to create more efficient services and products. By taking proactive steps now, businesses can ensure that they are ready for whatever comes next in the world of finance.

Conclusion: Understanding The Implications of the Silicon Valley Bank Failure

The failure of Silicon Valley Bank (SVB) has been a wake-up call for the banking industry. It has highlighted the need for banks to be more proactive in their risk management strategies and to be aware of the implications of technological advances on their operations. The sheer size and scale of SVB’s numbers may be daunting, but it also provides a clear picture of where the problems lie. In 2011, SVB garnered $1.9 trillion in assets, making it the sixth-largest bank in America by total deposits and the tenth-largest by total loans. However, in a pre-emptive move to protect its business from potential losses, SVB has not kept up with technological developments such as cloud computing and mobile banking.

Author: Francesco La Rocca

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