Its closure sent a wave of panic through global financial markets. A week ago, however, few knew the name of this bank: Silicon Valley Bank. It was closed on Friday March 10 by the American authorities, marking the biggest bank failure in the United States since that of Washington Mutual which caused a financial crisis in 2008. And the second biggest failure of a retail bank.
The champion bank for start-ups
Little known to the general public, SVB was specialized in the ecosystem of start-ups – in particular in Silicon Valley – and in the financing of venture capital, that is to say young innovative companies with high growth potential. . Its deposits had exploded alongside the technology industry, increasing by 86% in 2021. Based in Santa Clara (California), in the heart of Silicon Valley, this publicly traded bank was owned by parent company SVP Financial Group, before to be officially taken over by the American agency responsible for guaranteeing deposits (FDIC).
It had become the 16th American bank by the size of its assets. At the end of 2022, it had $209 billion in assets and about $175.4 billion in deposits. According to its own website, SVB worked with “nearly half” of venture-backed start-ups in the United States, particularly in the tech, healthcare and healthcare sectors, such as Pinterest and ZipRecruiter. .
The CEO predicted “a volatile first half”
SVB boss Greg Becker joined the bank nearly 30 years ago as a loan officer, until becoming CEO of SVB Financial Group in 2011. Silicon Valley Bank website for sale moreover a “champion of the economy of innovation”. After serving on the board of directors of the Federal Reserve Bank of San Francisco, he had to leave his seat that same day, the federal bank announced.
On Friday March 10, two days after his bank collapsed, the CEO sent a video message to his employees, acknowledging the “incredibly difficult” 48 hours leading up to the disaster. In January 2023, Greg Becker indicated that the economic outlook would improve for his bank after a gloomy 2022. “We still believe that in the first half, there will be more volatility,” he said, however.
A bank weighed down by its obligations
The bank with a thousand startups held a high number of Treasury bonds and other government bonds, the latter comprising more than half of its assets, according to Bloomberg News. As interest rates rose, these bonds lost value and the bank then had to make up for the losses. To remedy this, it announced on Wednesday that it had sold $21 billion in assets and planned to sell some of its shares to raise funds. The disclosure created panic among tech investors and company founders, who encouraged start-ups to withdraw their money. This caused a 60% drop in SVB shares on Thursday, March 9.
SVB’s problems have thrown much of the industry into instability. Investors sold shares of large and small banks on Thursday, slashing the value of the four largest U.S. banks alone by $52 billion. While the megabanks rallied almost immediately, many of their smaller counterparts continued to dive.
Cryptocurrencies had also placed deposits in SVB’s coffers, such as the USDC crypto, called “stable” because theoretically indexed to the dollar. She announced that she had left 3.3 billion dollars with SVB, inaccessible for the moment. For the time being, the FDIC having taken over the bankrupt bank only authorizes withdrawals of 250,000 dollars.