Crisis at Silicon Valley bank deepens as tech worries spill onto Wall Street

The effects of the tech sector are spilling over to the banking industry as investors assess the survival chances of a Silicon Valley bank, a major startup lender.

Trading in the bank’s shares was halted on Friday before the markets opened after the shares fell double digits in pre-market trading, following a drop of more than 60% on Thursday. Shares of other banks also declined in Thursday trading, highlighting investor concerns about broader risks to the financial industry.

Concerns about a run on a bank in Santa Clara, California, the 16th largest bank in the country, prompted stock market investors to sell shares in other banks. The excitement at SVB followed news this week that Silvergate, a much smaller bank primarily focused on the cryptocurrency industry, has announced plans to close.

The Silicon Valley Bank did not respond to a request for comment.

The drama began earlier this week when SVB announced that it had sold about $21 billion worth of securities and offered to offer more than $1 billion worth of shares, all to raise funds for “corporate-wide purposes.”

The move surprised investors, who wondered why the bank had to urgently raise so much money. It also raised concerns among savers, many of whom suddenly wondered if their money was safe in Silicon Valley Bank, a lender known for helping finance the explosion of tech companies in the San Francisco Bay Area.

On Thursday, The Information reported that Silicon Valley Bank CEO Greg Becker asked venture capital clients to “keep calm” as some tech founders began to inquire whether their companies had money in Silicon Valley Bank.

Concerns about SVB stem from its concentration in the technology sector, an industry plagued by high interest rates and an economic downturn.

Many of the Santa Clara, California-based bank’s depositors are technology companies and venture capital funds, and it doesn’t rely on family savings accounts like the banks familiar to the average American household.

The company’s technology-focused strategy has helped it cope with the massive industry growth that preceded and survived the pandemic. But overzealous hiring during the public health crisis has more recently led the tech sector to launch mass layoffs as the Federal Reserve has sharply increased borrowing costs to bring down inflation and raised expectations for an economic downturn.

“The question here is, what is the domino effect of problems outside the banking industry on the banks themselves?” said Mike Mayo, banking analyst at Wells Fargo Securities. “Banks are still the heart of the economy and if there is a problem, the banks will feel it.”

Mayo warned that the banking system as a whole now has tighter barriers than it did 15 years ago due to policies put in place since the last financial crisis, such as rules imposing stricter capital and liquidity requirements.


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