Silicon Valley Bank :- Being the favorite of west coast tech firms helped Silicon Valley Bank (SVB) rise to become one of the top 20 banks in the US, but it turns out that it expanded at the price of controlling its risk exposure.
About half of the US’s venture capital-backed technology and life science companies as well as more than 2,500 venture capital firms (VCs), which are businesses that invest in startups in the hopes that they would see long-term growth, received services from the bank.
Even though only $250,000 per account is protected by the federal government, VCs and startups were permitted to maintain multimillion dollar accounts with banks. The bank had successfully persuaded Congress for deregulation, cutting its regulatory control, and had done essentially nothing to protect itself against rising interest rates (despite the fact that the whole world anticipated them).
Interest rates rose, making it more expensive to develop and manage businesses, and customers started withdrawing cash. A portion of SVB’s bond portfolio was sold at a loss in an effort to offset these withdrawals, but the company was unable to find a buyer.
The fact that it failed the same week that Signature and Silvergate banks did raised worries that it might trigger a larger bank run. There were also worries that strong companies would suffer. Early-stage firms sometimes generate almost little income but rely on the funds from investors, which are kept in bank accounts, to support their operations. Within US borders, SVB’s UK affiliate had deposits worth billions, again concentrated in the tech industry. Calls to intervene and take action poured in inevitably.
HSBC bought up SVB(Silicon Valley Bank) UK
SVB UK was acquired by HSBC in the UK. HSBC has a solid enough balance sheet to ensure everyone that it can absorb SVB, and as a result of the acquisition, more than 3,000 clients’ deposits, totaling £6.7 billion, have been safeguarded. Depositors in the US would have complete access to their money, according to the Federal Reserve. This deviance from the established guidelines was proof that the US central bank was concerned the crisis might spread. Together with Vice President Joe Biden, the Fed emphasized that public money will not be used to pay for this. The Deposit Insurance Fund, which is funded by fees paid by the banking sector, will be used to cover any deficits. If these fees are passed on to customers is yet to be seen.
Despite the fact that 2008 is not being repeated, the same fundamental ideas are being used. To help financial institutions and the customers who depend on them, the government and central banks have stepped in. This time, however, is different because, in contrast to banks, who have long been aware of their connection to the government, the internet industry thought it was above it. Big tech has seldom been a fan of the state, from libertarian important leaders like Peter Thiel to the “Silicon Six” moving money to low-tax nations.
Yet, as we can see with SVB, when circumstances are hard, the government must step in to help the IT industry. Banks that focus on investing in technology are still a part of the larger financial system. We all rely on the same system, including the venture capitalists and IT businesses that relied on the security of their deposits. More generally, the industry should cease viewing itself as special and acknowledge that it is linked to society and has a responsibility to it. Because the next time, it could discover that the remnants of the government and regulators are unable or unwilling to provide assistance.