The Silicon Valley Bank (SVB) has not found a buyer. Now the US deposit insurance FDIC has taken control of the bank.
SVB is a Santa Clara-based bank that lends money to and accepts deposits from Silicon Valley tech startups.
The Silicon Valley Bank is also relevant here in Germany: As the bank announced last year, the money house has more than 3,600 customers in Europe, ten percent of whom come from Germany.
The tech world never stops. After the bankruptcy of FTX and the collapse of the crypto bank Silvergate Capital, another bank is causing turmoil in the market. The Silicon Valley Bank (SVB) is considered the house bank of the startup scene. Now the institute is in trouble – and has to close. Here we explain what happened and why German founders are also panicking.
What happened at Silicon Valley Bank?
Shares in SVB Financial Group fell more than 60 percent on Thursday and Friday. The company then announced that it would stop trading. Now the US deposit insurance FDIC has taken control of the bank. To protect customers, all of the bank’s insured deposits have been transferred to a new special purpose entity.
The bank’s attempt to raise capital failed. Previously, the bank attempted to sell itself after failing to complete a $2.3 billion capital raise.
Customers should have access to this money again by Monday morning at the latest. According to the FDIC, the bank had $209 billion in assets under management and approximately $175.4 billion in customer deposits at the end of December. It is initially unclear how much of this will be covered by the deposit insurance.
SVB is a Santa Clara-based bank that lends money to and accepts deposits from Silicon Valley tech startups. The company website According to the report, the bank provided funding to 44 percent of all venture-backed technology and healthcare companies listed on a stock exchange last year.
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Why has the SVB share price plummeted?
There are two reasons for this – but both are related to aggressive rate hikes by the US Federal Reserve, which is trying to curb rising US inflation. As interest rates rise, startups find it harder to access financing as borrowing becomes more expensive – and that has led to high levels of deposit outflows at the SVB, according to analysts. As a result, several SVB customers have limited their involvement with the institution.
SVB’s “unique niche in the tech world is a real boon when business is booming, but a problem when it’s not,” said strategy expert Steve Sosnick of Interactive Brokers. The US Federal Reserve interest rate has also weighed on the SVB’s bond holdings. This week, the bank announced a loss of $1.8 billion. The SVB tried unsuccessfully to raise $2.3 billion through stock sales to offset those losses.
How is the crisis affecting other banks and stocks?
Wall Street’s four largest banks — JPMorgan, Bank of America, Wells Fargo and Morgan Stanley — lost a combined $55 billion in market value. The KBW Bank Index – which tracks the top publicly traded banks in the US – fell 7.7 percent on Thursday (local time), marking its worst day in nearly three years. Crypto bank Silvergate Capital announced its closure earlier on Thursday, making the market very vulnerable right now. Some of Wall Street’s biggest names have sounded the alarm as fears mount that SVB’s turmoil will spill over into the broader financial system.
How bad are the effects for Germany?
The Silicon Valley Bank is also relevant here in Germany: As the bank announced last year, the money house has more than 3,600 customers in Europe, ten percent of whom come from Germany. Dax companies have already started trading with hefty losses – including Deutsche Bank with seven percent and Commerzbank with four percent in the morning.
Accordingly, German startups are also affected by the bank’s difficulties. “The situation has been escalating since yesterday,” said the founder of a Berlin fintech when asked by the Gründerszene. He did not want to be named. He and other co-founders are concerned that they may no longer be able to access the money they have parked at the bank.
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This article was translated from English by Klemens Handke. You can find the original here.