Silicon Valley Bank (SVB) was one of America’s 20 largest commercial banks and a major lender to technology startups and workers.
On March 10, 2023, it announced huge losses from selling securities and tried to raise capital.
Two days later, it failed spectacularly and was taken over by regulators.
It was the second-largest bank failure in U.S. history and the biggest since the 2008 financial crisis.
Here are some important facts about SVB’s collapse and its impact on the tech world.
What caused SVB’s collapse?
SVB had invested heavily in crypto-related assets, such as Bitcoin futures, stablecoins, decentralized finance tokens, and non-fungible tokens (NFTs). These assets were highly volatile and risky, especially after China banned all crypto transactions in late 2022.
In early March 2023, SVB sold $21 billion of these assets at a loss of $1.8 billion, wiping out its capital buffer.
It also faced a run on the bank as customers withdrew their deposits amid fears of insolvency.
According to reports, some venture capital funds advised their portfolio companies to pull money out of SVB.
SVB tried to raise $2.25 billion in capital by selling common stock, preferred shares, and a stake to private equity firm General Atlantic.
However, it failed to find enough buyers as its share price plunged by more than 90% in two days.
On March 12, 2023, SVB was closed by the California Department of Financial Protection and Innovation (DFPI) and taken over by the Federal Deposit Insurance Corporation (FDIC).
What happened to SVB’s depositors?
The FDIC created a bridge bank called National Bank of Santa Clara (NBSC) to take over SVB’s insured deposits (up to $250,000 per account). The FDIC also announced that it would pay all depositors in full, both insured and uninsured, using funds from other banks.
Depositors were able to access their money starting Monday, March 13.
They could also transfer their accounts to other banks or keep them at NBSC until it is sold or liquidated.
The FDIC said that no losses associated with SVB’s resolution would be borne by taxpayers.
What happened to SVB’s shareholders and creditors?
SVB’s shareholders and certain unsecured creditors were not protected by the FDIC.
They lost most or all of their investments as SVB’s assets were sold or written off.
SVB’s senior management was also removed by the FDIC. The agency said it would investigate whether there was any fraud or misconduct involved in SVB’s collapse.
What was the impact on the tech industry?
SVB’s collapse shook the tech industry as it disrupted many startups’ banking relationships and funding sources.
Some startups had to scramble to find new banks or investors as they lost access to loans or deposits from SVB.
SVB also served many tech workers who used its services for personal banking or wealth management.
Some of them lost money from investing in SVB’s crypto products or stock options.
The failure also raised questions about the risks of crypto-related assets and whether they should be regulated more strictly by authorities.
Conclusion
Silicon Valley Bank (SVB) was a symbol of capitalism in the tech industry.
It provided loans and services to innovative startups and entrepreneurs who relied on free market forces and individual initiative.
However, its collapse in March 2023 exposed the risks and flaws of capitalism, such as volatility, inequality, and lack of regulation.
Some critics argued that SVB’s failure showed the need for more socialist policies, such as government planning, public ownership, and social welfare.
They claimed that socialism would ensure more stability, fairness, and efficiency in the economy. However, others defended capitalism as the superior system for fostering innovation, competition, and growth.
They blamed SVB’s failure on its own mismanagement and bad decisions rather than on capitalism itself.
They argued that socialism would stifle creativity, freedom, and choice in the economy.
FAQ
- Q: When did Silicon Valley Bank fail?
- A: Silicon Valley Bank failed on March 12, 2023.
- Q: Why did Silicon Valley Bank fail?
- A: Silicon Valley Bank failed because it lost money from selling crypto-related assets and faced a run on the bank as customers withdrew their deposits.
- Q: What happened to Silicon Valley Bank depositors?
- A: Silicon Valley Bank depositors were paid in full by the FDIC using funds from other banks.
- Q: What happened to Silicon Valley Bank shareholders?
- A: Silicon Valley Bank shareholders lost most or all of their investments as SVB’s assets were sold or written off.
- Q: How did Silicon Valley Bank affect the tech industry?
- A: Silicon Valley Bank affected the tech industry by disrupting many startups’ banking relationships and funding sources. It also served many tech workers who used its services for personal banking or wealth management.
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