Silicon Valley Bank Collapses
CNBC↱ describes the "second-biggest bank collapse in U.S. history":
Rising interest rates presented challenges for SVB's investment portfolio, forcing a bond sale representing a $1.8 billion loss. Depositor concerns in a sector rattled by financial uncertainty spiked withdrawals, creating potential for a proper run. CNBC explains, "a bank run at SVB could pose an existential threat to startups who couldn't tap their deposits". A conference call with CEO Greg Becker failed to assuage fears; the stock price plummeted, and "Becker couldn't assure listeners that the capital raise would be the bank's last". Prominent investors and depositors started pulling out; Ryan Falvey, a venture investor with prior experience at SVB, described the beginning of a run: "When you say, 'Hey, get your deposits out, this thing is gonna fail,' that's like yelling fire in a crowded theater. It's a self-fulfilling prophecy."
In a follow-up report, CNBC↱ considers the impacts:
Right now, the FDIC is focused on quelling further risk; moreover, everything feels strange because, "according to SVB’s audited financials, the bank has the cash available," finance expert Mark Williams explained, "its assets are greater than its liabilities — so there’s no apparent reason why clients shouldn’t be able to retrieve the bulk of their funds"; moreover, "regulators understand not moving quickly to make SVB’s uninsured depositors whole would unleash significant contagion risk". For many SVB depositors, the question might well be who can weather the disruption. Additionally, SVB always had a concerning risk profile. Williams explained, "It’s a concentrated bet on an industry that it’s going to do well", and suggested, "The liquidity event would not have occurred if they weren’t so concentrated in their deposit base."
According to legend, SVB was first imagined over the course of a poker game. "And," Williams observes, "that's kind of how it ended."
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Notes:
Levi, Ari. "Startups scramble to meet payroll, pay bills after SVB’s swift collapse". CNBC. 10 March 2023. CNBC.com. 10 March 2023. https://bit.ly/3J5OQVX
Son, Hugh. "Here’s how the second-biggest bank collapse in U.S. history happened in just 48 hours". CNBC. 10 March 2023. CNBC.com. 10 March 2023. https://bit.ly/3mCELbr
CNBC↱ describes the "second-biggest bank collapse in U.S. history":
On Wednesday, Silicon Valley Bank was a well-capitalized institution seeking to raise some capital.
Within 48 hours, a panic induced by the very venture capital community that SVB had served and nurtured ended the bank's 40-year-run.
Regulators shuttered SVB Friday and seized its deposits in the largest U.S. banking failure since the 2008 financial crisis and the second-largest ever. The company's downward spiral began late Wednesday, when it surprised investors with news that it needed to raise $2.25 billion to shore up its balance sheet. What followed was the rapid collapse of a highly-respected bank that had grown alongside its technology clients.
Even now, as the dust begins to settle on the second bank wind-down announced this week, members of the VC community are lamenting the role that other investors played in SVB's demise.
“This was a hysteria-induced bank run caused by VCs,” Ryan Falvey, a fintech investor of Restive Ventures, told CNBC. “This is going to go down as one of the ultimate cases of an industry cutting its nose off to spite its face.”
Within 48 hours, a panic induced by the very venture capital community that SVB had served and nurtured ended the bank's 40-year-run.
Regulators shuttered SVB Friday and seized its deposits in the largest U.S. banking failure since the 2008 financial crisis and the second-largest ever. The company's downward spiral began late Wednesday, when it surprised investors with news that it needed to raise $2.25 billion to shore up its balance sheet. What followed was the rapid collapse of a highly-respected bank that had grown alongside its technology clients.
Even now, as the dust begins to settle on the second bank wind-down announced this week, members of the VC community are lamenting the role that other investors played in SVB's demise.
“This was a hysteria-induced bank run caused by VCs,” Ryan Falvey, a fintech investor of Restive Ventures, told CNBC. “This is going to go down as one of the ultimate cases of an industry cutting its nose off to spite its face.”
Rising interest rates presented challenges for SVB's investment portfolio, forcing a bond sale representing a $1.8 billion loss. Depositor concerns in a sector rattled by financial uncertainty spiked withdrawals, creating potential for a proper run. CNBC explains, "a bank run at SVB could pose an existential threat to startups who couldn't tap their deposits". A conference call with CEO Greg Becker failed to assuage fears; the stock price plummeted, and "Becker couldn't assure listeners that the capital raise would be the bank's last". Prominent investors and depositors started pulling out; Ryan Falvey, a venture investor with prior experience at SVB, described the beginning of a run: "When you say, 'Hey, get your deposits out, this thing is gonna fail,' that's like yelling fire in a crowded theater. It's a self-fulfilling prophecy."
In a follow-up report, CNBC↱ considers the impacts:
The sudden collapse of Silicon Valley Bank has thousands of tech startups wondering what happens now to their millions of dollars in deposits, money market investments and outstanding loans.
Most importantly, they’re trying to figure how to pay their employees.
“The number one question is, ‘How do you make payroll in the next couple days,’” said Ryan Gilbert, founder of venture firm Launchpad Capital. “No one has the answer” ....
.... While bank failures aren’t entirely uncommon, SVB is a unique beast. It was the 16th biggest bank by assets at the end of 2022, according to the Federal Reserve, with $209 billion in assets and over $175 billion in deposits.
However, unlike a typical brick-and-mortar bank — Chase, Bank of America or Wells Fargo — SVB is designed to serve businesses, with over half its loans to venture funds and private equity firms and 9% to early and growth-stage companies. Clients that turn to SVB for loans also tend to store their deposits with the bank.
The Federal Deposit Insurance Corporation, which became the receiver of SVB, insures $250,000 of deposits per client. Because SVB serves mostly businesses, those limits don’t mean much. As of December, roughly 95% of SVB’s deposits were uninsured, according to filings with the SEC.
Most importantly, they’re trying to figure how to pay their employees.
“The number one question is, ‘How do you make payroll in the next couple days,’” said Ryan Gilbert, founder of venture firm Launchpad Capital. “No one has the answer” ....
.... While bank failures aren’t entirely uncommon, SVB is a unique beast. It was the 16th biggest bank by assets at the end of 2022, according to the Federal Reserve, with $209 billion in assets and over $175 billion in deposits.
However, unlike a typical brick-and-mortar bank — Chase, Bank of America or Wells Fargo — SVB is designed to serve businesses, with over half its loans to venture funds and private equity firms and 9% to early and growth-stage companies. Clients that turn to SVB for loans also tend to store their deposits with the bank.
The Federal Deposit Insurance Corporation, which became the receiver of SVB, insures $250,000 of deposits per client. Because SVB serves mostly businesses, those limits don’t mean much. As of December, roughly 95% of SVB’s deposits were uninsured, according to filings with the SEC.
Right now, the FDIC is focused on quelling further risk; moreover, everything feels strange because, "according to SVB’s audited financials, the bank has the cash available," finance expert Mark Williams explained, "its assets are greater than its liabilities — so there’s no apparent reason why clients shouldn’t be able to retrieve the bulk of their funds"; moreover, "regulators understand not moving quickly to make SVB’s uninsured depositors whole would unleash significant contagion risk". For many SVB depositors, the question might well be who can weather the disruption. Additionally, SVB always had a concerning risk profile. Williams explained, "It’s a concentrated bet on an industry that it’s going to do well", and suggested, "The liquidity event would not have occurred if they weren’t so concentrated in their deposit base."
According to legend, SVB was first imagined over the course of a poker game. "And," Williams observes, "that's kind of how it ended."
____________________
Notes:
Levi, Ari. "Startups scramble to meet payroll, pay bills after SVB’s swift collapse". CNBC. 10 March 2023. CNBC.com. 10 March 2023. https://bit.ly/3J5OQVX
Son, Hugh. "Here’s how the second-biggest bank collapse in U.S. history happened in just 48 hours". CNBC. 10 March 2023. CNBC.com. 10 March 2023. https://bit.ly/3mCELbr