Sun. Apr 2nd, 2023

Regulators have seized the assets of Silicon Valley Bank, one of the largest banks in the Silicon Valley, marking the biggest bank failure since the 2008 financial crisis.

The bank's collapse has caused anxiety among technology startups and venture capital-backed companies that relied on it.

Reason for failure:

Silicon Valley Bank, based in Santa Clara, California, failed due to a sudden rush by depositors to withdraw their money amid anxiety over the bank's health. The bank served mostly technology workers and venture capital-backed companies, including some of the industry's best-known brands. The bank's collapse is seen as an "extinction-level event" for startups, according to Garry Tan, CEO of startup incubator Y Combinator.

Garry Tan, Y Combinator. Image Credits: Pedro Fiúza/NurPhoto / Getty Images

Impact on Startups:

Tan estimated that nearly one-third of Y Combinator's startups will not be able to make payroll at some point in the next month if they cannot access their money. Furthermore, nearly half of the U.S. technology and health care companies that went public last year after getting early funding from venture capital firms were Silicon Valley Bank customers.

Impact on Roku:

Internet TV provider Roku was among the casualties of the bank collapse. It said in a regulatory filing that about 26% of its cash—$487 million—was deposited at Silicon Valley Bank. Roku said its deposits with SVB were largely uninsured, and it did not know "to what extent" it would be able to recover them.

Seizure of Assets:

As part of the seizure, California bank regulators and the FDIC transferred the bank's assets to a newly created institution, the Deposit Insurance Bank of Santa Clara. The new bank will start paying out insured deposits on Monday. Then the FDIC and California regulators plan to sell off the rest of the assets to make other depositors whole.

Impact on the Banking Sector:

There was unease in the banking sector all week, with shares tumbling by double digits. Then news of Silicon Valley Bank's distress pushed shares of almost all financial institutions even lower on Friday. The biggest banks, however, have healthy balance sheets and plenty of capital, and there is little chance of the chaos spreading in the broader banking sector.

Silicon Valley Bank's collapse has caused anxiety among technology startups and venture capital-backed companies that relied on it. However, the banking sector is much healthier than during the Great Recession, and the biggest banks are unlikely to cause an economic meltdown.


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