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Writer's pictureBahar Şahin

Silicon Valley Bank: Collapse

Updated: Mar 16, 2023



Silicon Valley Bank, which declared bankruptcy almost overnight, is described as the second-largest bank failure in the USA. In this article, we explained the Silicon Valley Bank and its breaking point and its impact on the market and the world.


Silicon Valley Bank


Silicon Valley Bank was founded in 1983 and since its inception has focused on the needs of investors, venture capital and startups. It provided banking services focused on the needs of early-stage startups, series A, B and C startups, and lastly, late-stage startups.


Being the 16th largest bank in the USA, it had a wide portfolio of customers from angel investors to entrepreneurs, from venture capitalists to individual customers.


Sudden Breaking Point


The overnight crash began after Silicon Valley Bank ("SVB") announced a loss of $1.8 billion from the sale of long-term bonds on March 9, 2023.


SVB has purchased billions of dollars of long-term bonds over the years to capitalize on the money its clients have invested in them. Due to the fact that long-term bonds are safe investments, the evaluation of investments came to the fore and SVB took the safe road which other banks pursued in general.


However, the COVID-19 pandemic and the economic depression brought about by the US midterm elections, albeit on a smaller scale, increased its impact with the increase in raw material prices, the increase in demand day by day, and the inability of the companies providing the supply to produce enough. This naturally affected the banks, and in the concrete case, the SVB.



On March 9, 2023, in terms of SVB, whose shares fell by 60% after the announcement of this loss by the SVB, some VCs suggested to startups and investors to take their money in SVB. Considering the rapid nature of the startup ecosystem, it was not a problem at first for investors and entrepreneurs to withdraw money from their accounts at SVB, but later on, SVB started selling its own assets to meet the customer's request for withdrawal. Sales to meet demand, which at first did not seem like a problem, caused SVB to go bankrupt. In about 24 hours, it lost $160 billion in value, again with the quick reaction of the market.



Effects of SVB Failure


Signature Bank emerged as another concrete example of how banks affect each other with the ripple effect in the financial sector. After the bankruptcy of the SVB, Signature Bank, which serves especially real estate companies, law firms and crypto money companies, ceased all operations by the FDIC on March 13. While this was seen as the government's effort to prevent the crisis in the banking and financial sector, it was emphasized that the crypto industry constitutes 30% of the deposits at Signature Bank.



Finally, the bankruptcy of Silicon Valley Bank, which mainly has special services for investors and entrepreneurs and is focused on the startup ecosystem, seems to prove the importance of risk management to entrepreneurs. Again, bankruptcy demonstrates with a real-life example the lesson that while startups are high-risk investments, risk management and market analysis-based foresight should be the focus.

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