A whole generation of startups may be destroyed if Silicon Valley Bank fails

A whole generation of startups may be destroyed if Silicon Valley Bank fails

The 48-hour collapse of Silicon Valley Bank resulted in the second-biggest failure of a financial institution in US history.

Silicon Valley Bank, one of the top 20 commercial banks in the country, is now managed by the US Federal Deposit Insurance Corporation because it was unable to reimburse customers for savings they withdrew.

But experts allayed worries of a wider spread, the bank's failure could have a huge impact on the startup and tech industries.

 

SVB was a very large bank

Since its founding in 1983, Silicon Valley Bank has financed about half of the US venture-backed technology and healthcare firms. Higher interest rates and a decline in venture financing have impacted them.

With $209 billion in total assets at the end of last year, SVB was among the top 20 US commercial banks while being comparatively obscure outside of Silicon Valley.

The FDIC moved with unprecedented speed.

When SVB (Silicon Valley Bank) disclosed on Wednesday that it had sold several instruments at a loss and would issue $2.25 billion worth of new shares to strengthen its balance sheet, the wheels started to come off.

The tech lender was shut down by California regulators on Friday. As a receiver, the FDIC will normally sell off the bank's assets to reimburse its clients, including depositors and creditors.

By no later than Monday morning, all insured depositors will have complete access to their protected deposits, according to the FDIC, an independent federal body that protects bank deposits and regulates financial institutions. It stated that an "advance dividend will be paid within the following week" to uninsured depositors.

The FDIC took control Friday morning instead of waiting until the markets closed.

"SVB's condition deteriorated so swiftly that it couldn't last just five more hours," writes Better Markets CEO Dennis M. Kelleher. "That's because the bank's depositors were withdrawing money so quickly that the institution became insolvent, and an intraday closure was not avertable owing to a classic bank run," the author explains.

Failure of Silicon Valley Bank occurs during a "difficult" period for startups.

 

According to the Federal Deposit Insurance Corporation, depositors will have access to up to $250,000 of their money by Monday morning. A "receivership certificate" will be issued for any sum over that.

 

The holders of certificates will also get payouts when the FDIC sells Silicon Valley Bank's assets, however, it is still being determined when that will happen and how much money will be returned.

 

According to some estimates, only 3% of the bank's deposits are under $250,000, which means most depositors have assets worth more than the amount covered by ordinary federal insurance.