Emergency high-tech bankruptcy – Finance – Kommersant
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The short-term bankruptcy of Silicon Valley Bank (SVB), one of the largest US banks associated with the high-tech industry, caught not only investors, but also US regulators by surprise. Now the American authorities are required to urgently intervene in the situation, save the bank’s clients’ funds and take emergency measures to contain the crisis caused by the collapse of SVB, so that its problems do not bring down both the country’s financial and technology sectors.
Last Friday, California-based Silicon Valley Bank declared bankruptcy, which a week ago was one of the largest and oldest US banks that worked with technology startups. Situation developed lightning fast – on Wednesday SVB carried out an additional issue of shares for $ 1.75 billion “to strengthen its balance sheet.” In its investor prospectus, the bank explained that it needed to recover $1.8 billion in losses it incurred as a result of the sale of part of its asset portfolio. The problems alarmed investors – they suspected that SVB’s troubles were much wider, so they began to sell off its shares. On Thursday, the bank’s quotes fell by 60%, and on Friday, California regulators declared the bank bankrupt and transferred it to external management.
Founded in 1983, Silicon Valley Bank survived the collapse of the high-tech bubble of the early 2000s and the financial crisis of 2008. The bank specialized in serving companies that received venture capital investments, as well as individuals associated with these companies and investors in these companies. The bank’s founders Bill Biggerstaff and Robert Medearis were fundamentally reluctant to venture into the broader retail banking market, instead focusing on working with the Silicon Valley tech start-ups after which the bank got its name. Bankruptcy of the SVB became the largest in the US since the 2008 crisis, and the SVB itself became the second largest bankrupt in US history after Washington Mutual Bank. As of the end of 2022, SVB’s total assets were estimated at $212 billion and it was the 16th largest US bank. The volume of deposits is about $175 billion.
The main problem with SVB itself is that the vast majority of its clients are companies and wealthy individuals whose deposits exceed $250,000. Federal deposit insurance covers this amount in the US. And such deposits make up 95% of the total SVB deposits. Experts fear that the problems of SVB clients could undermine confidence in the entire banking sector. And the losses incurred by the startups that SVB served could lead to their bankruptcy, which, in turn, will hit the high-tech market.
IN number companies that SVB has funded or serviced include Canadian e-commerce software developer Shopify, the world’s largest plant-based meat substitute manufacturer Beyond Meat, stablecoin issuer USDC, cryptocurrency company American Circle, and others. American Circle has already announced cancellation peg USDC to the dollar, saying that 8% of its $40 billion ($3.3 billion) reserves are linked to SVB.
Now investors and market participants are not only asking questionwhere the regulators were and why they allowed the collapse of such a large bank, but also urge the authorities to urgently intervene in the situation.
“Where’s Powell? Where is Yellen? CNBC quotes famous venture capitalist David Sachs as he addresses the Federal Reserve. Stop this crisis right now. Tell us that all deposits are safe. Get it done before trading opens on Monday or the crisis will escalate rapidly.”
Some media suggest that the first payments on insured deposits in the amount of up to $ 250,000. The Federal Deposit Insurance Corporation may begin as early as Monday. Influential billionaire investor Bill Ackman declaredthat the US government has 48 hours to take action – otherwise the situation may become irreversible.
“By allowing SVB to go bankrupt without protecting all of its deposits, the authorities made it clear to everyone what an uninsured deposit is – an unsecured illiquid obligation of a bankrupt bank,” the investor said.
According to Mr. Akman, if urgent measures are not taken, in the coming days, many companies and individual depositors will run to banks to withdraw their uninsured deposits from all US banks that are not included in the list of systemically important ones.
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