SVB Bankruptcy: An End to an Era of Start-Up Financing
Silicon Valley Bank (SVB), which has been a major source of funding for startups for the past 40 years, has been acquired by First Citizens, a US small and medium-sized bank. The announcement was made by the US Federal Deposit Insurance Corporation (FDIC) on March 27th, stating that First Citizens has agreed to underwrite all deposits and loans of SVB. This comes after SVB went through bankruptcy procedures due to a bank run on March 10th.
Established in 1983 as a subsidiary of Silicon Valley Financial, SVB has grown into the 16th largest bank in the United States, serving as a source of money for startups. It was the center of the US venture capital industry that finances technology projects, and has provided investment and private banking services as well as deposits and loans to startups. SVB has 44% of US tech and healthcare venture companies as customers, and has supported many startups such as Cisco, Circle, TrueUSD, Airbnb, LinkedIn, and Uber.
However, the failure of crisis management due to the short-term sharp rise in the benchmark interest rate eventually led to the bankruptcy of SVB. The value of US Treasury bonds fell as interest rates soared, and startups that had difficulty attracting funds increased deposit withdrawals, resulting in losses for the bank.
To make up for this, the bank announced a capital increase plan, which led to a plunge in stock prices and a large withdrawal on March 9th. Deposits began to decrease as startups began withdrawing deposits they had entrusted to them all at once in a situation where financing was difficult across the market.
The news of SVB’s collapse caused a massive bank run and eventually led to bankruptcy. As SVB, which served as a source of funding for startups, closed, the anxiety in the Silicon Valley ecosystem, which needs funding, is growing.
The impact of the Silicon Valley bank’s bankruptcy has also spread to Europe. Credit Suisse, the world’s ninth-largest global investment bank in terms of assets, was sued for not disclosing internal control problems, and a bank run occurred after the stock price collapsed. The Swiss central bank hastily provided a bailout, and the government led the acquisition by UBS, but unrest in the market remains.
The closure of SVB has increased anxiety and fear across Silicon Valley, with startups struggling to find funding in a difficult market. The procession of bankruptcies in US banks later led to the closure of Signature Bank, and massive deposit withdrawals continued to take place at First Republic Bank of San Francisco, which has the 14th largest asset size in the United States. 11 large US banks, including JP Morgan Chase, supported deposits of $30 billion to stabilize the situation.
In conclusion, the bankruptcy of SVB has sent shockwaves through the startup ecosystem and the banking industry, with its impact, felt not only in the US but also in Europe. It highlights the importance of crisis management and the risks of short-term investments. The fallout from this event is likely to be felt for some time to come, with many startups and banks struggling to recover from the financial losses incurred.
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