Silicon Valley Bank Collapses: FDIC Takes Over, Cash Crunch for Tech Startups
By Silicon Valley Bank, a fixture in the venture capital space for decades, suffered a sudden and swift collapse on Friday, March 10th, 2023 and was taken over by the Federal Deposit Insurance Corporation (FDIC). SVB had become a centerpiece of finance in the tech industry, particularly for startups and the venture capitalists (VCs) who invest in them.[0] But the firm itself faced liquidity problems this year as startup financing dried up and its own assets were locked down in long-term bonds.[0]
The FDIC said all insured depositors will have full access to their insured deposits no later than Monday morning.[1] Uninsured depositors will receive an “advance dividend within the next week.” in the coming week.[2] SVB’s parent company, SVB Financial Group, had attempted to raise $2.25 billion in new shares to shore up its balance sheet, but the move spooked markets and clients and ultimately led to the bank's failure.[3]
The incident has sent shock waves across the tech sector, with many companies and people with money in SVB moving to pull it out earlier in the week.[3] Many tech leaders urged companies that banked with SVB not to panic or withdraw their money, but the risk was too high, and a self-fulfilling bank run ensued.[4]
The failure of Silicon Valley Bank has resulted in a cash crunch and payroll crisis for hundreds of tech startups.[5] Investors, such as Bill Ackman, are calling on the government to act fast and guarantee all of SVB's deposits in order to protect people from uninsured deposits. Meanwhile, other regional bank stocks have been hit hard by the news, leading some to speculate which lender will be the next victim.
Silicon Valley Bank was founded in 1983 in Santa Clara, California and had become a major lender to the tech sector, with clients such as Airbnb, Stripe and Coinbase. It’s failure marks the second-largest bank failure in US history, after Washington Mutual’s collapse in 2008.[6] It is an alarming reminder of the fragility of small banks and the importance of FDIC insurance.[7]
0. “Investors implore the government to step in after Silicon Valley Bank failure” CNBC, 11 Mar. 2023, https://www.cnbc.com/2023/03/11/silicon-valley-bank-failure-has-investors-calling-for-government-aid.html
1. “PR-16-2023 3/10/2023” FDIC, 10 Mar. 2023, https://www.fdic.gov/news/press-releases/2023/pr23016.html
2. “What to know about the spectacular collapse of Silicon Valley Bank” NPR, 10 Mar. 2023, https://www.npr.org/2023/03/10/1162599556/silicon-valley-bank-collapse-failure-fdic-regulators-run-on-bank
3. “What is Silicon Valley Bank? The bank’s collapse, explained.” Vox.com, 10 Mar. 2023, https://www.vox.com/technology/23634433/silicon-valley-bank-collapse-silvergate-first-republic-fdic
4. “Most of Silicon Valley Bank's Deposits Were Uninsured” TIME, 10 Mar. 2023, https://time.com/6262009/silicon-valley-bank-deposit-insurance/
5. “Silicon Valley Bank failure could wipe out ‘a whole generation of startups'” NPR, 11 Mar. 2023, https://www.npr.org/2023/03/11/1162805718/silicon-valley-bank-failure-startups
6. “Here's how much of your bank deposits are FDIC protected” The Washington Post, 11 Mar. 2023, https://www.washingtonpost.com/business/2023/03/10/faq-fdic-insurance
7. “Why Is the US Regulating JPMorgan But Not SVB?” Bloomberg, 10 Mar. 2023, https://www.bloomberg.com/opinion/articles/2023-03-10/banking-why-is-the-us-regulating-jpmorgan-but-not-svb
