After the Silicon Valley Bank disaster, the British subsidiary was taken over by the major bank HSBC, and the German financial regulator closed the local branch.
The events come thick and fast. After the difficulties at the US Silicon Valley Bank (SVB) escalated on Friday, the responsible supervisory authority reacted quickly to avoid a “bank run”: They closed the institute without further ado and brought it under state control so that customers – almost only startups and tech companies – not withdrawing their funds in droves and thus accelerating the collapse. In order to keep the panic low, there was also a quick commitment from the US government: the government emphasized that no funds parked by startups at the institute should be lost. This commitment is important because there is no significant security for such deposits in the United States.
There was also a quick reaction in Great Britain, where the subsidiary of Silicon Valley Bank, which is relevant for Europe, is based and where funds from German start-ups are also managed. The British bank HSBC takes over the institute. The British government announced on Monday morning that the transaction had been “facilitated by the Bank of England in consultation with the Treasury” – unlike in the United States, taxpayers’ money was not involved. Commentators in London spoke of a success for the tech industry in the country.
read too
German branch also closed by authorities
The German authorities also reacted on Monday. The Federal Financial Supervisory Authority (BaFin) issued a ban on the sale and payment of the Silicon Valley Bank Germany Branch due to the existing risk to the fulfillment of obligations to creditors. In addition, BaFin ordered the bank to be closed to customers – a so-called moratorium.
The Silicon Valley Bank Germany Branch, based in Frankfurt am Main, has been based in Germany since May 2018 and offers loans for startups. In addition to providers such as Claret, it has developed into one of the largest venture debt providers. The form of financing had recently become very popular because it enables start-ups to raise money quickly in times of reluctant venture capitalists. According to the annual financial statements at the end of 2022, the institute’s total assets amounted to EUR 789.2 million.
Silicon Valley Bank Germany Branch does not operate a deposit business in Germany. Unlike the bank in the USA or Great Britain, it does not manage any money from financing rounds that would then be missing for wage payments, for example. The Bafin writes that the moratorium has no consequences for deposit insurance in Germany.
How did the Silicon Valley Bank collapse?
Silicon Valley Bank (SVB) built its business around managing capital raised from startups in funding rounds. From these urgent deposits, the institute bought billions of dollars in US government bonds and other securities, such as mortgage-backed securities (MBS), which bore slightly better interest rates than the bank used to lure its customers. Since there is normally no interest on the market, the companies were able to increase the money.
read too
But then came the turnaround in interest rates. Because investors quickly invested less money in startups, the flow of money at the SVB dried up. And since, at the same time, the startups themselves needed even more money to become profitable – a necessity in order to regain investor interest – the outflow was much larger than expected. Assets have shrunk by as much as $25 billion each quarter since the first quarter of 2022, bank records show.
At the same time, the bonds in the books of the SVB Bank drastically lost value, another effect of the turnaround in interest rates. Some investors recognized this development, including Peter Thiel’s Founders Fund, and advised their portfolio companies to put their money in a safe place at another bank – which intensified the vicious circle described.
Management bonuses were paid shortly before the closure
California’s Silicon Valley Bank (SVB) paid out annual bonuses shortly before its collapse. Eligible employees of the money house would have received their performance bonuses a few hours before the closure by the US government. This is reported by the news site Axios. CEO Greg Becker also sold $3.6 million of shares in parent company SVB Financial Group in February, Bloomberg reports. On Thursday, March 9th, the shares of the Silicon Valley Bank on Wall Street posted a record daily loss: market values of around 80 billion US dollars were wiped out.
You can read more about the collapse of the Silicon Valley Bank here shortly.