Silicon Valley Bank — one of the most prominent banks in the country, which held relationships with
Since its founding in 1983, SVB has been a key player in supporting startups and other companies backed by venture capital. For hundreds, perhaps thousands, of numerous tech and innovation startups, this provided new players with a reputable and widely-accepted option to secure loans and hold funds.
As of Friday, however, the bank is now widely considered to be the single
While the ongoing fragility of the tech sector hasn’t exactly been doing SVB any favors, the bank’s swift slide into complete failure and utter chaos in just a few short days has taken many by surprise. This news prompted a series of questions that started to rise among the public: How could this have happened? And in what ways will this affect the banking industry moving forward?
What Went Down?
With private fundraising made more expensive thanks to the Federal Reserve’s attempt to combat inflation with higher interest rates, a growing number of tech startups were forced to borrow more and more from SVB as investors became more cautious. The bank itself, however, was quietly struggling to meet the recent steady rise in financial demand, and needed a plan in order to quickly make up for its low liquidity.
Surely enough, red flags were flying high that Wednesday when the SVB Financial Group announced a
Ultimately, the capital raise did little to bolster confidence in venture-capital clients and founders, who were soon encouraged to quickly pull their funds from SVB en masse. Driven by investors with growing concerns over a potential bank run, this led to a direct negative impact on the company stock the following day on Thursday as it
Before long, public trust in bank stocks across the board also started to wane, resulting in a same-day $52b market value loss among the
By Friday morning, trading had been put on pause. Come Friday afternoon, the California Department of Financial Protection & Innovation shut down the bank entirely and relinquished the firm over to the FDIC shortly after. Widespread panic ensued over the weekend as
That is until Sunday rolled around, when U.S. regulators announced deposits at the bank would be protected and available in full by Monday morning. This announcement was brought alongside the official closure of Signature Bank, an institution that made its name off the back of real-estate ventures and, more recently, its dive into the crypto industry.
In the Wake of the Collapse, Who Stepped Up?
As small startups and their founders scrambled to make payroll while the future of the tech industry was being threatened, many of its prominent leaders stood up, looking for any way they could lend a helping hand to those most affected by the crisis.
CEO of OpenAI Sam Altman and renowned venture capitalist Vinod Khosla were among the first to lead the charge in support of small businesses, offering good-faith loans to periled companies and encouraging other VCs to do what they can to help.
https://twitter.com/sama/status/1634249962874888192?embedable=true
Garry Tan – the President and CEO of Y Combinator, a major accelerator for early-stage startups – started a petition for startups at risk, imploring affected businesses all over Twitter to sign it and prompt regulators to take action. The petition received more than
https://twitter.com/garrytan/status/1634697926219010048?embedable=true
Some companies, like those within the financial services and technology sphere, were taking the opportunity to assist depositors while simultaneously gaining goodwill to draw in new potential customers.
Brex – a fintech business dealing in credit and cash management accounts – opened an emergency bridge loan to assist companies with funds tied up at SVB so they could meet payroll and additional operational needs. After only a day following the bank’s collapse, the initiative had received over
How Will This Impact the Future of Banking?
In an
“If you look at the chain of events we had, once we started seeing the rate of increases, we first had the most speculative part of the market kind of see a collapse, whether it was in the crypto space, these banks, the FDX, and now it seems that it is expanding into this private market space, venture capital, [and] asset prices may be coming down and liquidity is becoming an issue,” said Geetu Sharma.
Although the effects of SVB’s looming collapse are already rearing their heads among other financial institutions, as is the case with the aforementioned First Republic Bank and, now, Signature Bank, Sharma says the “trillion dollar question” is a matter of exactly how far these ripples will reach. So far, those ripples are slowly becoming waves as they continuously sweep across the country, spilling over into the
https://twitter.com/fintechjunkie/status/1635150177576292353?embedable=true