On Wednesday, March 8, U.S. Silicon Valley Bank shocked investors by announcing that it needed to raise $2.25 billion in order to strengthen its balance sheet. The business attempted to raise funds, but it was too late.
A California regulatory filing also states that as of Thursday March 9, customers had withdrawn a staggering $42 billion worth of deposits. Those who stayed with SVB now face an uncertain timeline for cash recovery.
According to the filing, SVB did not have enough collateral from other sources and had a negative cash balance of $958 million at the close of business that day.
Within 48 hours, the bank’s 40-year existence was ended by panic caused by the very venture capital community that SVB had served and nurtured. However, the current financial issues at SVB are unlikely to spread to other U.S. banks, according to some analysts.
On Friday, regulators shut down SVB and seized its deposits in the second-largest bank failure in U.S. history. However, the rapid demise of a highly regarded bank that had expanded alongside its technology clients followed.
In the mean time, as the residue chooses the subsequent bank wind-down reported for this present week, individuals from the VC people group are regretting the job that other investors played in SVB’s destruction.
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This incident is the most recent repercussion of the Federal Reserve’s most aggressive rate-hiking campaign in four decades to control inflation. There are concerns that startups may not be able to pay their employees in the upcoming days, venture investors may have difficulty raising funds, and an already troubled industry may face a deeper malaise as a result of the ramifications.
Dislocations brought on by higher rates are the root cause of the collapse of SVB. SVB ran out of money as its startup clients withdrew deposits to keep their businesses afloat in the cold environment for IPOs and private fundraising. The bank announced late on Wednesday that it had been forced to sell all of its available-for-sale bonds at a loss of $1.8 billion.
According to people with knowledge of the situation, VCs instructed their portfolio companies to move funds on Thursday due to the sudden need for new capital following the collapse of the crypto-focused Silvergate bank. The issue is that startups that were unable to tap their deposits could face an existential threat if there was a bank run at SVB.
In recent days, prominent funds like Union Square Ventures and Coatue Management instructed all of their startup rosters to withdraw funds from SVB due to concerns about a bank run. Social media also worsened the situation. They just elevated the frenzy, according to reports.
The majority of SVB’s deposits were uninsured, and it is unknown when they will be released, despite the fact that insured deposits are expected to be available as early as Monday.
“The abrupt store withdrawal has made the Bank be unequipped for paying its obligations as they come due,” the California financial regulator stated. “The bank is now insolvent.”
