Silicon Valley Bank collapse: Here's all you need to know The era of easy monetary policy has enabled tech companies of all sizes to raise and deploy funds, and SVB benefited from this boom. But the Ukraine war has fueled global inflation levels and that led central banks to tighten monetary policy aggressively.
March 14, 2023 / 04:58 PM IST
Silicon Valley Bank, which benefitted hugely in the era of easy monetary policy, went under as central banks across the world began to tighten monetary policy as inflation spiralled out of control because of the Ukraine war.
Silicon Valley Bank (SVB) is a California-based bank running since 1983 that lends to early-stage technology and biotech startups, and manages funds of venture capitalists, HNI founders.
Banks fail as they lend long term, whereas, their deposits are short term. They cannot call back their long-term loans easily, whereas their short-term deposits have to be paid on demand.
The era of easy monetary policy has enabled tech companies of all sizes to raise and deploy funds, and SVB benefited from this boom. The recent Ukraine war fueled global inflation levels and that led central banks to tighten monetary policy aggressively.
On March 8, reports claimed that one of the funds run by leading VC Peter Thiel had asked to withdraw deposits from SVB. On the same day, the bank clarified that it had sold government bonds to shore up its capital base.
Federal Deposit Insurance Corporation, which deals with failed banks in the US, placed SVB under receivership. Uninsured depositors will receive funds only after the FDIC sells the assets of the bank.
As India is a more consumption-oriented economy, the impact may be muted. However, if the West slips into a recession, it will impact Indian financial markets and growth rates.
SVB recently disclosed $1.8 billion loss on its bond bets, with little deposit in hand. Worries coincided with closure of Silvergate Capital.
Peter Thiel’s founders’ fund instructed businesses to pull cash. when US Fed sent cheques to process. SVB failed to transfer collateral.