5 things to know about the collapse of the Silicon Valley bank

On Friday, regulators closed a Silicon Valley bank in what was the biggest bank failure since the 2008 recession and shocked the tech world.

The Federal Insurance Corporation (FDIC) set up the National Bank of Santa Clara to hold deposits and other assets from a failed Silicon Valley bank, but the sudden closure is affecting tech firms, which face immediate repercussions such as employee payrolls.

More than 93 percent of the $161 billion deposited with Silicon Valley Bank is not insured by the FDIC. according to Bloomberg News analysis.

Here’s how the Fed’s rate hike is hurting tech companies

The closure will have a further impact on the tech world and raise additional concerns for banks.

Here are five things to know about the collapse of the Silicon Valley bank.

The Silicon Valley Bank was a major force in technology

Founded four decades ago, the Silicon Valley Bank (SVB) catered to startups and the tech world funded by venture capital. According to the bank’s website, its clients have included brands such as Shopify, ZipRecruiter and venture capital firm Andreessen Horowitz.

Wedbush analyst Dan Ives called it a “nightmare situation”.

“This will have a huge impact on the tech ecosystem and the artery of Silicon Valley private companies. SVB is a fundamental part of the tech startup community and will have limited impact on tech startup funding going forward,” Ives said in an email.

The closure will affect even non-customer businesses, especially with the most immediate impact on wage arrears.

Parker Conrad, CEO of Rippling, the payroll processor that used Silicon Valley Bank, said there will be payout delays early this week.

The company is focused on “getting those employees paid as quickly as possible,” he said. said on twitter. Going forward, Rippling will use JPMorgan Chase & Co.

Kevin Yun, co-founder of GrowSurf, told the semaphore what he thought he had “nothing to do with SVB” as his client software company used a different bank, Mercury.

But by using Rippling, his company is also embroiled in the more serious consequences of the outage.

The Silicon Valley Bank was clearly dependent on the growth of startups and other technology companies.

The bank has become the latest technological victim of high interest rates

The Silicon Valley Bank has been hit hard by a series of rising Federal Reserve interest rates. This is the latest way interest rates have hit the tech sector.

Tech companies and the ecosystem in which they are built are very sensitive to higher interest rates because many companies, especially startups, operate with high levels of debt.

Venture capital and other riskier forms of investment are also becoming less profitable as businesses face higher borrowing costs, and the sharp decline in the value of cryptocurrencies has also robbed many tech companies of billions of dollars.

Big tech companies are losing tens of thousands of jobs as the pandemic flourished

Big-spending tech firms have responded to the Fed’s hike in interest rates with layoffs, including at some of the country’s biggest companies such as Facebook parent Meta, Google parent Alphabet and Amazon.

These three companies alone recently unveiled plans to lay off a total of 41,000 employees.

But now even budding startups, already facing headwinds from rising rates, are facing yet another hurdle in their path.

The collapse was surprisingly sharp

The FDIC rarely takes over large banks like Silicon Valley Bank. Even more rarely, the agency accepts it in the middle of the working day.

Traditionally, the FDIC will announce its decision to take over and liquidate the bank after the stock market closes on Friday to limit potential damage to customers.

But the speed of the Silicon Valley collapse prompted banking regulators to act quickly, which stunned banking experts and industry analysts.

The bank’s death spiral began on Thursday, shortly after Silicon Valley executives announced plans to raise up to $1.75 billion in capital to bolster their books.

As customers raced to move their funds from hand to hand, the California Department of Financial Protection and Innovation intervened on Friday to end the bank run.

A government agency took over the bank and handed it over to the FDIC, which will take the bank apart to try and make its customers and debtors whole.

Only a portion of client funds can be covered by regulators

Silicon Valley Bank was overseen by the FDIC, a federal agency responsible for making sure banks were reliable and responsible enough to serve their customers.

When an FDIC regulated bank fails, its customers are insured for up to $250,000 per bank account.

While some customers may receive all of their money refunded by the FDIC, dozens of businesses and individuals with millions of dollars in the bank may only receive a fraction of their money.

On Friday, the FDIC said customers will have access to their insured deposits no later than Monday morning. Uninsured depositors will receive a dividend and a certificate indicating how much money they owe the bank as the FDIC sells its assets.

The collapse raises more serious concerns among banks

The Silicon Valley Bank was the biggest bank failure since the 2008 financial crisis, and its collapse raised fears of a broader downturn across the sector.

The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite closed with losses of more than 1% on Friday as stocks of large and small banks fell sharply.

Market operators have frozen the shares of several banks, including First Republic, PacWest and cryptocurrency-focused bank Signature due to high volatility. according to CNBCand even Goldman Sachs and Bank of America shares suffered.

Treasury Secretary Janet Yellen called a meeting of federal banking regulators on Friday, the Treasury Department said, to discuss the ongoing damage caused by the collapse of Silicon Valley Bank.

However, she “expressed full confidence that banking regulators will take appropriate action in response and noted that the banking system remains resilient.”

Cecilia Rose, chair of the White House Council of Economic Advisers, also told reporters Friday that she believes the banking forms introduced after the 2007-2008 crisis will protect the economy from more serious damage.

“Our banking system is much more resilient than it was in 2008, we have learned a lot, we have better tools so that we can protect Americans’ important investments,” Rose said.

While the collapse of Silicon Valley Bank could have devastating consequences for dozens of technology companies and thousands of industry workers, a growing number of banking experts are confident that it will not cause a wider crisis in the industry.

The bank was clearly dependent on the growth of large technology firms and the financial health of the industry as a whole, which made it very vulnerable to damage from rate hikes.

New study of monkeys using stone tools raises questions about evolution

“[Silicon Valley Bank’s] the balance sheet is unlike that of most U.S. banks,” writes Karen Shaw Petrow, managing partner at Federal Financial Analytics, in Friday’s tweet.

“It’s not systemic, but it shouldn’t have happened,” Petru continued.

Alex Gangitano contributed.

Copyright 2023 Nexstar Media Inc. All rights reserved. This material may not be published, broadcast, rewritten or distributed.

Content Source

News Press Ohio – Latest News:
Columbus Local News || Cleveland Local News || Ohio State News || National News || Money and Economy News || Entertainment News || Tech News || Environment News

Related Articles

Back to top button