It is the largest for a US bank since the 2008 crisis and confirms the recent difficulties of the technology sector
Silicon Valley Bank (SVB), one of the largest US banks in the tech startup sector, it failed necessitating intervention by the US government. It is the largest bankruptcy in the country’s financial history since Washington Mutual in 2008 and marks the end of a bank that had a valuation of more than $44 billion just a year and a half ago. Deposits up to $250,000 will be guaranteed by the Federal Deposit Insurance Corporation, the body that offers guarantees on current accounts, but almost all investors had much higher amounts in SVB which now risk not receiving back.
The news of the bankruptcy of SVB had negative repercussions on the equity markets, but less extensive than expected. The US banking system is solid and stable, like he clarified Treasury Secretary Janet Yellen, but there were still effects for the major technology-focused equity firms. In fact, some of the largest and most important used SVB to manage their financial activities, disburse funds to startups and direct their spending activities.
SVB had been founded in 1983 in Santa Clara in California and in a short time it had become one of the main banks in Silicon Valley, where IT companies were beginning to concentrate. In 2021 the bank managed about half of all funds used to finance startups: it had grown rapidly and had attracted numerous investors, interested in having a bank specialized in investments in the technology sector.
For a long time, business had gone very well, thanks to the successes and rapid growth of technology companies. SVB had raised financial resources of various types for 200 billion dollars, an important figure, but in any case far from those collected by the largest and most traditional US banks, usually in the order of trillions of dollars.
Overall, SVB used the money deposited by its customers to invest it in bonds (bonds), a strategy that was quite common among banks and which had paid off well until last year when inflation started to increase. The US central bank (the Federal Reserve) had intervened by raising interest rates, driving down the value of investments that the SVB had already made at lower rates.
Like the other banks, SVB could have waited for the natural end of the investments already made to stem the problem, but it had found itself dealing with a sharp economic slowdown linked to Silicon Valley technology companies. The flow of new deposits had decreased and many customers had begun to be skeptical of the solidity and reliability of the bank, so much so that some had chosen to withdraw own funds also at the request of some investment funds.
On March 8, things got even worse when SVB Financial Group, one of the branches of the bank, announced the sale of securities for $21 billion, projecting a loss of about $2 billion. The bank hoped this would restore its balance sheets, but the announcement of the losses had further frightened customers and investors, causing a new wave of withdrawals by account holders. Finally, on Friday 10 March, the government intervened with the decision to close the bank to protect the owners of the accounts.
According to analysts, SVB failed so quickly due to the heavy exposure to a single sector, that of Silicon Valley technology companies, and the consequent lack of differentiation with investments in other sectors. As long as the growth of some startups and already established companies was strong, SVB also had no problems in other phases of general economic slowdown. The bank was also chosen by many investors because it offered easy access to credit for startups, with dedicated plans for financing companies that by definition lose money in their startup phase.
Given the specificity of SVB, the analyzes circulated so far do not signal particular risks for the rest of the US banking sector. The bankruptcy will have limited repercussions, but it is in any case a further sign of the moment of difficulty that is affecting venture capitalists, those who invest in new technology companies by betting on their future often with high-risk financing.