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.
“Kinda insane that this entire debacle was potentially caused by @ByrneHobart‘s newsletter. Here’s how the butterfly effect happened.
All started by one overly prolific due in Austin. Amazing.”
“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.