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Silicon Valley Bank went bankrupt: does this mean that the 2008 crisis can be repeated?


The immediate response of experts is that the fall of the entity would not extend to the rest of the financial sector. But there are other problems in the offing for some technology companies. These are the most affected groups.

By Ken Sweet —

The Associated Press

The financial institution best known for its dealings with high-flying venture capital and technology startups, Silicon Valley Bank, suffered one of banking's oldest problems, a bank run, which led to its bankruptcy on Friday.

Its fall is the biggest failure of a financial institution since Washington Mutual collapsed at the height of the financial crisis more than a decade ago, with immediate effects.

Some startups with ties to the bank rushed to pay their workers, fearing they would have to pause projects or lay off or furlough employees until they could access their funds.

How did this happen?

Here's what you need to know about why the bank failed and who was affected most.

Also, how what happened can and cannot affect the banking system in general in the United States. 

Customers try to access the Park Avenue location of Silicon Valley Bank (SVB), in New York City, after learning of its fall, on March 10, 2023. DAVID DEE DELGADO / REUTERS

Why did Silicon Valley Bank fall?

Silicon Valley Bank has been hit hard by falling technology stocks over the past year, as well as the Federal Reserve's aggressive plan to raise interest rates to combat inflation.

The bank has bought billions of dollars in bonds over the past two years, using customer deposits as a typical bank would normally.

These investments are typically safe, but the value of those investments fell because

they paid lower interest rates

than a comparable bond would pay if issued in today's higher interest rate environment.

That's usually not a problem, because banks keep them for a long time, unless they have to sell them in an emergency.

[Three things to know before filing your taxes]

But Silicon Valley customers were mostly tech-focused startups and startups that

they began to

need more cash during the past year


VC funding was drying up, companies couldn't get additional rounds of funding for unprofitable deals, and therefore had to tap their existing funds, usually on deposit with Silicon Valley Bank, which was in the center of the universe of technology start-ups.

So Silicon Valley customers

started withdrawing their deposits


Initially, that wasn't a big problem, but the withdrawals meant that the bank had to start selling its own assets to meet customer withdrawal requests.

Because Silicon Valley clients were mostly businesses and wealthy individuals, they were likely more afraid of a bank failure since their deposits exceeded $250,000, which is the federally imposed limit for deposit insurance coverage.

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All of this required selling typically safe bonds at a loss, and those losses added up to the point where

Silicon Valley Bank effectively became insolvent


The bank tried to raise additional capital through outside investors, but was unable to find them.

The fancy, tech-focused bank was brought down by banking's oldest problem: a good run on the bank.

Banking regulators had no choice but to seize Silicon Valley Bank's assets to protect the remaining assets and deposits at the bank.

And now, what's next?

Two big problems remain with Silicon Valley Bank, both of which could lead to more problems if not resolved quickly.

The most immediate problem

is Silicon Valley Bank's large deposits.

The federal government insures deposits up to $250,000, but anything above that level is considered uninsured.

The Federal Deposit Insurance Corporation said the insured deposits would be available Monday morning.

However, the vast majority of Silicon Valley Bank's deposits were uninsured, a unique feature of the bank because its clients are mostly startups and wealthy tech workers.

At the moment, all that money is not accessible and will probably have to be released in an orderly process.

But many companies can't wait weeks to gain access to funds.

to cover payroll and office expenses.

This situation

could lead to furloughs or layoffs.

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March 8, 202300:44

The second problem is that

there is no potential buyer

for Silicon Valley Bank.

Typically, banking regulators look for a stronger bank to take over the assets of a failing bank, but in this case, another bank has not stepped up.

A bank buying Silicon Valley Bank could go a long way toward solving some of the problems around money that startups can't access right now.

Can what happened in 2008 be repeated?

Not at the moment, and experts

don't expect problems to spread

to the banking sector in general.

Silicon Valley Bank was big but

had a unique existence

, serving almost exclusively the world of technology and venture capital-backed companies.

He did a great job with the particular part of the economy that was hit hard last year.

[The Biden Administration assures that the “resilience” of the banking system will withstand the collapse of Silicon Valley Bank]

Other banks are much more diversified

across multiple industries, customer bases, and geographies.

The Federal Reserve's most recent round of "stress tests" of the largest banks and financial institutions showed that they would all survive a deep recession and a significant rise in unemployment.

However, there could be an economic ripple effect in the Bay Area and in the world of tech startups if the remaining money cannot be released quickly.

Source: telemundo

All news articles on 2023-03-12

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