$175 BILLION of customer funds are now at risk in the 16th largest bank in America.
Collapse of Silicon Valley Bank: Bad News for Tech Companies. The collapse of Silicon Valley Bank (SVB) opens the already challenging situation of technology companies. SVB was has long been a backbone for the sector.
As the name suggests itself and SVB also advertised itself as a “partner for the innovation economy.” It was the most popular bank for technology start-ups in the Silicon Valley. Almost every entrepreneur, investor, VC or startup had an account with SVB. And, this meant something.
It was offering the best support to the tech community in the region. So, let’s take a look on what actually happened?
Silicon Valley Bank Saga
If we take the short timeline of activities taking place, here is the saga:
1. SVB is a top 20 US bank
2. It sold bonds at a loss
3. Customers freaked out
4. A classic bank run ensued
5. Regulators took control
6. SVB shutdown
Now thousands of start-ups, VC’s and CEOs are at risk of losing a bunch of money.
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Collapse of Silicon Valley Bank
The collapse of Silicon Valley Bank wasn’t eminent. However, the following steps were the major reason for its collapse:
1. SVB begins to face run on bank as $91 billion in bonds face interest rate risk
2. Firesale of $21 billion bond portfolio is announced
3. Over $1.8 billion is lost during firesale
4. SVB announces $2.3 billion share sale to cover bond losses
5. Credit agencies cut SVB’s credit ratings
6. SVB fails to raise capital as investors panic
7. U.S. banking sector loses nearly $100 billion in market cap in 24 hours
8. SVB announces intention to sell the company
9. Regulators and FDIC take control of SVB
10. Second largest bank collapse in US history seemingly happens overnight
Currently, 93% of all deposits at SVB are ABOVE the $250,000 FDIC insurance limit. Resultantly, $175 BILLION of customer funds are now at risk in the 16th largest bank in America.
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Bad News for Tech Companies
Well, the bad news is here. Most of the SVB customers are tech startups, Venture Capital firms, businesses and entrepreneurs. The entire community is shaken as they are unable to run their daily operations. All the funds are blocked and everyone is waiting for Monday. The FDIC will be sharing the next steps for protection of customers.
However, out of total $175 billion in customer deposits, only 2.7% of those deposits are insured. So what happens next? No one knows for sure. This is about $171 billion of customer’s money at risk. You can check details here: What happened at Silicon Valley Bank?
Apparently, the tech sector has been devoid of $171 billion and the shock will remain for a while. It means thousands of investors, entrepreneurs and VCs will not be able to invest in the market anymore. At least, for a good one year!
Collapse of Silicon Valley Bank: Bad News for Tech Companies!