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A Quick Postmortem on Silicon Valley Bank
The collapse of Silicon Valley Bank (SVB) marked the second-largest bank failure in US history. Oof.
After a series of high-profile missteps, the bank’s once good fortune took a turn for the worse. Culminating in eventual downfall of SVB. And the bank’s final agonal gasps heard against the ears of every tech start-up attendees at SXSW this year. But let’s go back before sh*t hit the fan. What exactly happened?
SVB’s heavy focus on US technology startups proved to be a double-edged sword during the COVID-19 pandemic. As tech companies thrived by providing entertainment and delivery services to people stuck at home, SVB saw a surge in deposits.
To invest this cash, SVB turned to US government bonds, considered one of the safest types of investment. However, troubles began when the US Federal Reserve raised interest rates in response to soaring inflation. Causing the value of these bonds to plummet.
As economic conditions for the tech sector worsened, many of SVB’s customers began withdrawing their funds, leaving the bank short on cash. Forced to sell its bonds at a loss, concerns about the bank’s financial health began to grow. Within 48 hours, panicked depositors withdrew enough funds to trigger the bank’s collapse.
In the wake of the bank’s collapse many took to Twitter. The social media platform thrown in a tizzy. Emotions ranging from shock and disbelief to anger and frustration and everything in-between. From industry experts to concerned entrepreneurs, check out the range of perspectives and response to this crisis, and what it reveals about the shaky state of the tech industry today.
‘Social media induced bank run’
As tweeted by Evan Armstrong, lead writer of the business-focused newsletter Napkin Math. Armstrong goes on further to describe the beginnings of the downward spiral:
“Kinda insane that this entire debacle was potentially caused by @ByrneHobart‘s newsletter. Here’s how the butterfly effect happened.
- Byrne posts this article/Tweet calling out SVB’s risk.
- Pretty much every VC I know reads this newsletter
- They all start to pay very, very close attention to SVB earnings
- Absolutely massive earnings miss by SVB
- Peter Thiel, USV, and Coatue are first to send out messages/mass emails to portfolio co’s to pull out funds
- Tech Twitter catches word of this
- Bank Run
- Collapse
- If FDIC/Buyer doesn’t come in, in the next 7 days, potential 20%+ collapse of entire startup industry.
All started by one overly prolific due in Austin. Amazing.”
‘Classic “runs on the bank” hurt our entire system’
As tweeted by Mark Suster, who serves as a partner at the venture capital company Upfront Ventures. Urging others in the VC community to ‘speak out publicly to quell the panic’ surrounding SVB:
“I believe their CEO when he says they are solvent and not in violation of any banking ratios & goal was to raise & strengthen balance sheet.
I believe the biggest risk to startups AND VCs (and to SVB) would be a mass panic. Classic “runs on the bank” hurt our entire system. People are making public jokes about this. It’s not a joke, this is serious stuff. Please treat it as such. People saying rational things like “have multiple banks” or “Have some in t-bills” – of course. But everybody yanking all their money out of SVB at once? To what end? Who will bank our nascent companies & industry? SVB has been the biggest backer for years.”
Despite his appeals for composure, intervention and subsequent takeover of the bank by the US Federal Deposit Insurance Corporation (FDIC) threw fuel to the viral fire.
‘YOU SHOULD BE ABSOLUTELY TERRIFIED RIGHT NOW’
As so eloquently tweeted by Jason Calacanis, a tech investor, wrote soon after FDIC intervened:
“That is the proper reaction to a bank run & contagion. @POTUS & @SecYellen must get on TV tomorrow and guarantee all deposits up to $10M or this will spiral into chaos.”
In the days following since the collapse, the Biden administration announced on Sunday that all funds of the collapsed Silicon Valley Bank will be accessible to customers from Monday onwards. In addition to a probe by the Department of Justice.
The announcement came as a relief to many customers who had been left stranded and anxious about the safety of their funds. The DOJ’s investigation into the collapse is expected to shed light on the exact causes of the bank’s failure, and could lead to criminal charges if any wrongdoing is uncovered.
