Silicon Valley Bank (SVB) in the United States has been closed down by authorities, and its assets have been confiscated, the Federal Deposit Insurance Corporation (FDIC) said on March 10.
The statement followed the abrupt closure of Silvergate Capital Corp. and SVB’s careless fundraising, which had caused a slaughter in startup sector equities in the United States. The investor, who was barely known outside of Silicon Valley, sparked a panic in the IT sector.
What is SVB?
SVB is a full-service bank based in Santa Clara that takes deposits, makes loans, and offers treasury management, international banking, internet banking, foreign exchange trading, and a variety of other services. This bank is well-known for serving consumers all around the globe.
What precipitated the crisis?
According to Bloomberg, the SVB issue began when its parent company, the SVB Financial Group, announced the sale of $21 billion in assets that were part of its portfolio, as well as the sale of $2.25 billion in shares, to shore up its finances.
Because of the downturn in the start-up industry, a lot of money was taken out of the bank’s accounts.In addition, the bank reported a decrease in net interest revenue.
What effect has it had?
On Thursday, the SVB shares fell by the most in roughly 35 years. After the capital issue, the stock dropped 60%, resulting in an $80 billion loss. The bank sought to reassure the venture investors that their money was secure.
What action is SVB taking?
In an effort to save the company, SVB CEO Greg Becker held a conference call with SVB customers and venture capital investors. He asked them to “stay calm” so that no more money would be taken out of the bank.”We are taking these moves because we foresee ongoing higher interest rates, pressured public and private markets, and rising cash burn levels from our customers as they invest in their companies,” he said in a letter to various shareholders on Wednesday.
What are venture capital firms’ reactions?
Peter Thiel’s Founder’s Fund, Coatue Management, and Union Square Ventures all told the companies they had invested in to reduce their exposure to SVB and take their cash out of banks.Several venture capital firms have also told the businesses they invest in to take some of their money out of the bank.
How are entrepreneurs dealing with the crisis?
Numerous startups have started withdrawing their capital from SVB and are seeking alternative lenders to lodge their cash. On the other hand, there is apprehension over who would be next in line to confront a similar circumstance.
Bill Ackman, the founder of Pershing Square, says that if a private financing solution can’t be found, the US government should think about rescuing SVB Financial Group in a way that would be “very dilutive.”
Company funded by venture capital utilises SVB for both loans and operations funds, and the firm’s bankruptcy might damage a critical long-term economic momentum, he argued in a series of tweets. According to Ackman, the government might potentially opt to guarantee deposits in return for warrants, allowing the corporation to generate fresh capital.