Silicon Valley Bank (SVB), one of the largest US banks collapsed on Friday causing it’s 40-year banking run to end.
Silicon Valley Bank (SVB), a key player in commercial lending and the venture capitalist community, was taken over by the Federal Government on Friday after a 48-hour bank run was made by frantic customers.
The fallout began on Wednesday when SVB announced to it’s clients that they were seeking to raise 2.25 billion to shore up their balance sheets after a spike in interest rates from the Federal Reserve.
In order to make this a successful plan, SVB intended on selling $1.75 billion of low-yielding shares and instead, this announcement was followed by a rapid increase of withdrawals from it’s customer base, forcing the deposits to be taken over by the FDIC, causing the largest banking failure since the 2008 financial crisis.
Who is affected by the Silicon Valley Bank fallout?
Silicon Valley Bank, is one of the largest US banks that widely caters to venture capitalists, investors and the start-up economy. Its parent company SVB Financial Group (SIBV.O) was warned earlier this month that the Federal Reserve was due to aggressively increase interest rates and that the stocks and bonds that they were regulating for customers would lose value.
This news forged many of it’s customers to make withdrawals, and because of it, venture capitalist firms and investors may struggle to raise funds for new and current projects, and many start-up tech companies may struggle to make payroll for their employees, and the tech industry may suffer later on.
These notable tech companies have publicly declared their connection to Silicon Valley Bank:
- Etsy – sent an email to their sellers stating they are working with other payment partners to be able to issue money to it’s sellers.
- Shopify – announced some payments were temporarily paused and has since resumed, while some of it’s merchants are still affected by SVB and may struggle to pay sellers on-time.
- FarmboxRX – which launched in 2014 and partners with health insurance plans like Medicare and Medicaid to deliver healthy food as a form of medicine moved it’s
- Roku -say 26% of its cash reserves are stuck in Silicon Valley Bank, $487 Million to be exact, which is largely uninsured.
- Roblox – had 5% of their $3 billion in SVB, though they stated the crash had no massive affect to their normal operations.
- Circle – announced all of its assets which are USD digital currency are safe and secure and has since moved to BNY Mellon.
What has happened since the collapse?
Since the collapse happened on Friday, the FDIC took over Silicon Valley Bank deposits and announced that its insured depositors will have access to their funds no later than Monday.
The FDIC’s standard insurance covers up to $250,000 per depositor, per bank, for each account of ownership and uninsured depositors will receive a certificate for their balances.
Despite the FDIC’s insurance limit, regulators have announced that all customers of SVB will have full access to their deposits, even those accounts who had beyond the insurance limit and that normal operations should be able to resume once the banks reopen.
What will be done to protect other banks?
Although SVB wasn’t a megabank like J.P. Morgan Chase or Bank of America, federal officials have stated they’re taking precaution to prevent a “contagion” from happening at other banks.
According to a statement from President Biden, “The banking system is safe.”