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Silicon Valley Bank went bankrupt in 48 hours! Or lead to the extinction of technology companies?

Silicon Valley Bank went bankrupt in 48 hours! Or lead to the extinction of technology companies?

On the 7th, the star bank, Silicon Valley Bank, which had just announced that it had been on the Forbes annual list of the best banks in the United States for five consecutive years, was suddenly announced to be taken over, and it was declared bankrupt on a de facto level, shocking the world.

Ranked 20th on the Forbes annual list of the best banks in the United States, what happened to Silicon Valley Bank in the United States with an asset size of US$209 billion at the end of 2022? Why did it end up like this?

suddenly declared takeover

On the 10th local time, the US Federal Deposit Insurance Corporation (FDIC) announced that Silicon Valley Bank was closed by the California Department of Financial Protection and Innovation on the 10th, and the US Federal Deposit Insurance Corporation was designated as the receiver. The head office and all branches of Silicon Valley Bank will reopen on the 13th.

The picture is from the announcement of the Federal Deposit Insurance Corporation (FDIC)

According to foreign media reports, the reason for the closure of the bank was “insufficient liquidity and insolvency”.

The above announcement shows that Silicon Valley Bank is headquartered in Santa Clara, California, and has 17 branches in California and Massachusetts. By the end of 2022, Silicon Valley Bank’s total assets will be approximately US$209 billion and total deposits will be approximately US$175.4 billion.

As the 16th largest bank in the U.S., Silicon Valley Bank is a major financial conduit between the tech industry, start-ups and tech workers, according to the Associated Press. But it is precisely its ties to the tech industry that have exacerbated its troubles. Tech stocks have been hammered over the past 18 months, layoffs across the industry and venture capital funding have been on the decline.

Meanwhile, the bank has been hit hard by the Federal Reserve’s fight against inflation and a series of aggressive rate hikes to cool the economy. The value of generally stable bonds began to fall as the Federal Reserve raised its benchmark interest rate. That’s usually not a problem, but when depositors become anxious and start withdrawing money, banks sometimes have to sell the bonds before they mature to make up for the outflow.

That’s exactly what happened to Silicon Valley Bank, which had to sell $21 billion of highly liquid assets to cover sudden withdrawals, and lost $1.8 billion on that deal. But this news has completely exposed the plight of the bank.

The 48 hours that led to the bank’s failure

On the 8th, Moody’s downgraded the ratings of Silicon Valley Bank Financial Group and its banking subsidiary Silicon Valley Bank. The outlook on SVB Financial Group and SVB was changed from “stable” to “negative” following the downgrade.

Picture from Moody’s official website

Investors and depositors attempted to withdraw $42 billion from Silicon Valley Bank on Monday, in one of the largest bank runs in the U.S. in more than a decade. At the same time, the stock price of its parent company, Silicon Valley Bank Financial Group, plummeted by more than 60% on the 9th and 68% on the 10th, entering a trading suspension.

It is worth noting that, according to Bloomberg News on the 11th, less than two weeks before Silicon Valley Bank disclosed a large-scale loss, Silicon Valley Bank CEO Greg Becker (Greg Becker) sold $3.6 million according to a trading plan. Company stock.

According to Reuters, Becker said in a video sent to employees on the 10th that the 48 hours that led to the bank’s failure were “extremely difficult.” “I can’t imagine what you’re thinking, your jobs, your futures.”

The bankruptcy of Silicon Valley Bank may affect many giants.

U.S. streaming service Roku says 26 percent of its cash reserves are held in Silicon Valley Bank, most of which are uninsured. Stablecoin giant Circle says $3.3 billion of its roughly $40 billion in USD Coin reserves is in Silicon Valley Bank. “Metaverse’s first stock” Roblox said that 5% of its $3 billion in cash is deposited in Silicon Valley Bank.

The collapse of Silicon Valley Bank also affected the US banking industry and the US stock market.

On the 10th, the stocks of the U.S. banking industry collectively plunged. The stock prices of the four major banks of JPMorgan Chase, Bank of America, Wells Fargo and Citigroup plummeted, and the total market value evaporated by about 50 billion U.S. dollars.

On the 11th, the Nasdaq index fell nearly 200 points, a drop of 1.76%; the Dow Jones index fell below the integer mark of 32,000 points, a drop of 1.07%.

Alarmed by US President Biden, the US Treasury Department held an emergency meeting

According to CNBC reports, on the 11th local time, people in Silicon Valley and the financial community in the United States publicly called on the federal government to push another bank to assume responsibility for its assets and debts after the collapse of Silicon Valley Bank.

The Federal Deposit Insurance Corporation of the United States stated on the 10th that in order to protect insured depositors, it has established a special agency to receive insured deposits from Silicon Valley Bank and will allow insured persons to withdraw their deposits before the morning of the 13th. For uninsured depositors, dividends will be paid as compensation.

CNBC reported that the US Federal Deposit Insurance Corporation will provide $250,000 in insurance for each depositor, but most of Silicon Valley Bank’s depositors are companies with deposits exceeding this amount, including a large number of startups.

Reuters reported on the 10th that Cecilia Rouse, chairman of the White House Council of Economic Advisers, expressed confidence in regulators when asked about the collapse of the Silicon Valley bank.

According to CNN news on the 10th, U.S. Treasury Secretary Janet Yellen (Janet Yellen) held an emergency meeting with key banking regulators on the 10th, expressing “full confidence” in these institutions’ appropriate response actions and saying that the U.S. banking system remains resilient .

According to Reuters news on the 11th, after the collapse of Silicon Valley Bank, the White House stated that US President Biden had a conversation with California Governor Newsom on the matter on the 11th. The White House statement noted that “President (Biden) and the governor of California spoke to Silicon Valley Bank and efforts to address the situation,” but gave no further details of the meeting.

Bloomberg reported on the 12th that on the evening of the 10th, many investors and startup founders participated in a webinar with Ro Khanna, a Democratic Congressman from Santa Clara, California. Connor expressed frustration with the White House’s silence on the issue, one attendee said.

Connor said on Twitter on the 11th that he was urging the White House and the Treasury Department to “do whatever the law allows” to support the bank.

125 VC firms, hundreds of business founders call for limit to fallout

According to Bloomberg News on the 12th, people familiar with the matter revealed that as of the afternoon of the 11th San Francisco time, about 125 venture capital firms, including Sequoia Capital, signed the statement led by the venture capital firm General Catalyst.

The statement called the events of the past two days “deeply disappointing and concerning” and said investors would continue their relationship with Silicon Valley Bank if it were acquired by another entity. It was part of a growing industry call to limit the fallout from the bank’s failure and avoid a possible “extinction-level event” for technology companies.

Also on the 11th, the startup incubator Y Combinator released a petition signed by hundreds of founders and CEOs to U.S. Treasury Secretary Janet Yellen and other regulators, asking for “relief and attention to small business , the immediate and significant impact on startups, and on their employees who deposit money in Silicon Valley banks.”

The petition calls for compensation for small businesses that deposit at Silicon Valley Bank and asks Congress to “reinstate stronger regulatory and capital requirements” for regional banks.

According to a report by Agence France-Presse on the 12th, US Treasury Secretary Janet Yellen said in an interview on the 12th that the US government hopes to avoid financial “contagion” caused by the collapse of Silicon Valley Bank, but ruled out the possibility of bailing out Silicon Valley Bank.

Panic spreads to the world, Silicon Valley Bank UK may go bankrupt

On the 10th local time, the Bank of England (the Bank of England) announced that it intends to apply to the court to include the UK subsidiary of Silicon Valley Bank (hereinafter referred to as “SVB UK”) in the bank bankruptcy proceedings. During this time, the company will stop making payments or accepting deposits. The Bank of England said SVB UK had limited operations in the UK and did not have key functions to support the financial system.

Picture from Bank of England official website

According to the Financial Times, until the 10th, SVB UK also stated that it was an “independent subsidiary” of Silicon Valley Bank, with its own balance sheet and “segregated” funds. But the company was forced to apply for £1.8bn of liquidity that day as panic spread among tech companies and investors.

However, on the 11th, about 210 start-up founders and leaders signed an open letter to the British Chancellor of the Exchequer Jeremy Hunt (Jeremy Hunt). “The Bank of England’s view that SVB’s failure would have limited impact on the UK economy shows a dangerous lack of awareness of the sector and its role in the wider economy today and in the future,” the letter said.

In their letter, they warned, “Most of us tech founders are calculating to see if we will become technically insolvent.” The letter said: “Most of the most exciting and dynamic tech businesses are With Silicon Valley Bank, they have no or limited diversity in their deposits.”

The Treasury said Chancellor Jeremy Hunt had spoken to Bank of England Governor Andrew Bailey, while City Secretary Andrew Griffith spoke to industry on Tuesday. Representatives held a round table meeting.

The current SVB UK official website announcement shows that after talking with the Prudential Regulation Authority, if there is no intervention, it intends to put SVB UK into bankruptcy from Sunday night.

Picture from SVB UK official website

According to British Sky News, there is news that the British Bank of London is considering the acquisition of bankrupt SVB UK.

In addition to U.K. regulators, Germany’s regulator (BaFin) is also monitoring the fallout from the Silicon Valley bank’s failure, according to Bloomberg.

A spokesman for the German regulator said the current developments were “under consideration” and would be “reflected in our ongoing supervision”. SVB Germany’s latest financial disclosure for 2021 says it is a “small, non-complex” institution that is not subject to capital requirements due to its reliance on the parent company’s capital and liquidity.

According to Bloomberg, fear has spread to Canada, India and other places. At a gathering of Wharton alumni in Singapore, financiers and entrepreneurs shared news of the aftermath.

Experts Worry About Other Small U.S. Banks Following Silicon Valley Bank’s Footsteps

Compared with the big banks in the bankruptcy of Silicon Valley Bank, the thunderstorm of Silicon Valley Bank brought to the surface the operating difficulties of small and medium-sized banks in the United States under the background of the Fed’s interest rate hike.

Lu Zhengwei, chief economist of Industrial Bank, said that in the future, if the Federal Reserve continues to tighten monetary policy and the growth rate of deposits continues to decline, other banks may be forced to sell. Bonds, which in turn erode profits and capital, a situation similar to Silicon Valley Bank. “Among them, some small and medium-sized banks with relatively poor deposit stability may be more prone to risks.”

Some analysts worry that in the face of unstable liabilities, other small and medium-sized banks in the United States may follow the old path of Silicon Valley Bank of the United States, that is, sell loss-making assets to raise liquidity, which in turn will weaken their profits and solvency, and make their operations face difficulties. greater uncertainty.

Talking about the financial and economic impact of Silicon Valley Bank, in the view of some investors, the bankruptcy of Silicon Valley Bank is more related to the misallocation of its own assets. The impact of the current crisis of Silicon Valley Bank on other parts of the financial system is controllable Yes, don’t worry too much.

However, some investors believe that “confidence is more precious than gold.” The bankruptcy of the Silicon Valley Bank of the United States has shaken the confidence of many American depositors in small and medium-sized banks. The vulnerability of small and medium-sized banks could weaken their ability to create credit and exert further downward pressure on the economy. If the risk of bank runs is concentrated, it may lead to a stock market crash and even a financial crisis, and the consequences will be unimaginable.

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