Silicon Valley Bank Bankrupted

Silicon Valley Bank (SVB), one of the biggest banks in the United States of America (USA), attracted attention with its unexpected collapse on 10 March 2023, despite being one of the leading and reliable names in the financial world. The bankruptcy of SVB is expressed by experts as the biggest crisis in the USA since the 2008 crisis.

Although SVB is preferred by start-ups and technology companies both in USA and around the world; it also worked with the vast majority of tech startups funded by venture capital-backed companies in USA.

To briefly mention the reasons for the collapse of SVB; as USA Federal Reserve (FED) increased interest rates, investors tended to take less risk. As a result, it has created significant challenges for SVB’s largest client portfolio, which consists of technology startups. SVB announced on 9 March 2023 that as a result of the FED’s decision to raise interest rates, it suffered a loss of approximately $1.8 billion occurred in the sale of USA Treasury bonds and mortgage-backed securities, in which it invested, due to the rapid depreciation of bonds. However, the fact that approximately 97% of SVB deposits are made up of unsecured deposits, combined with the shock effect of the announced loss, has seriously damaged investor confidence in SVB.

As a result of all these negative situations, investors started to be concerned about their deposits and the rapid withdrawal of depositors from SVB brought about the collapse. Following the closure of SVB by the California Department of Financial Protection and Innovation, the Federal Deposit Insurance Corporation (FDIC) was appointed as the trustee of SVB.

On 12 March 2023, the statement was made on the FDIC’s official website regarding the status of depositors. According to the related statement, all insured depositors will have full access to their insured deposit accounts until at least the morning of 13 March 2023.

As a result, in the face of this crisis, FED and other authorized institutions felt under pressure to support the banking system and reduce the impacts of the panic situation in the markets. Since SVB’s bankruptcy, both the authorities and investors are concerned that other medium-sized banks will follow suit. As a result, FED and other authorities appear eager to establish an effective collateral system for all bank deposits. One of the first steps taken towards this situation is that; together with FED, United Kingdom, Japan, Canada, European and Swiss Central Banks made a joint statement that “the liquidity value of the dollar will be increased” in coordination.

Tagged with: Gökçe, Yağmur Yollu, Elif Aksöz, Fintech