Search
Close this search box.

Silicon Valley Bank’s situation and what that means for tech firms

SIlicon Valley Bank Headquarters (ABC, 2023

Silicon Valley has a strong reputation for being home to some of the world’s most promising tech and science startups. It also is home to Silicon Valley Bank (SVB), a bank which had been very active in loaning money to fund some of the most promising technology startups in the area. Its collapse is bad news to everyone in the industry because it shows how fragile the system is. 

 

So how exactly did this all happen anyway?

 

The events leading up to the collapse of this bank are complex, as is the case in most things related to the economic state of our planet. But I will explain this to you in the most straightforward way possible. 

 

  1. Until 2021, SVB moved their investments to long-term securities for an increased yield. However, this contradicted their loaning strategy, comprised mainly of short-term loans. This then led them to be quite vulnerable for months at a time because they were insolvent and due to the high associated costs of liquidating their assets.
  2. Recently, with technological firm stocks’ underperformance and an overall need for money, many of SVB’s customers drew money. This led to SVB needing to sell off its assets to cover this demand in withdrawal. 
  3. Remembering that most of these assets were long-term bonds, this liquidation of assets occurred at heavy losses. 
  4. This caused distress amongst investors and consumers and eventually led to SVB’s collapsing less than two days later. 

The short timeframes of this drastic turn in events remind the tech industry of the economy’s fragility in that market. It is the biggest banking failure since the 2008 crisis and serves as a reminder to all of us regarding the fragility of the global economy. 

Leave a Reply

Your email address will not be published. Required fields are marked *