Silicon Valley Bank was in financial trouble due to their investment in bonds that had lower returns than inflation, even after the Federal Reserve raised interest rates. This meant that they weren’t making enough money to meet their customers’ needs, which made things worse when they tried to fix the problem.
Investors and analysts took the rise in inflation as a sign of danger, leading to panic and venture capitalists warning people to take money out of the bank. The Federal Deposit Insurance Company stepped in, sending managers home but allowing cashiers to keep working.
Silicon Valley Bank was not the kind of bank most people keep their money in, but its major customers were Silicon Valley tech startups, which kept their deposits in the bank due to its large deposits. It differed from traditional banks in that it had few customers but large deposits, which were used by tech startups to pay their creditors and employees. At the time of its closure, it had $209 billion in assets.
The closure of Silicon Valley Bank was a warning to the technology economy, as it helped tech startups from Mumbai to Beijing open US bank accounts and get in the eyes of investors. In the US, money held by the federal government in insured bank accounts cannot disappear just because a bank goes bankrupt, but the sum insured limit is two and a half lakh dollars. On Friday afternoon, none of those investors had any idea how they were going to get their deposits back.
Foreign tech startups are facing a problem due to the lack of a US bank to transfer their money to. Companies like XieLab and View Technologies have put money into Silicon Valley Bank, but according to Startup Y Combinator, 10,000 Indian startups and thousands of Indians who have accounts there may not be able to get paid.
The US government announced on Sunday evening that anyone with money in Silicon Valley Bank would have access to their full amount on Monday. This was due to the US government’s ability to bail out banks and guarantee funds, as well as the global reserve currency, the dollar, and the concentration of technology companies in the US. People and institutions around the world breathed a sigh of relief.
Few governments are able to offer the level of protection where they have the resources to step in and save a failing bank. Along with talent, technology and innovation need more and more money to ensure thatces to step in and save a failing bank. Along with talent, technology and innovation need more and more money to ensure that. China and India must also develop this capability within themselves if they want to become technological superpowers.
Silicon Valley Bank is still insolvent, and even though the US government can save the banks, it cannot escape the political fallout from helping the world’s wealthiest tech investors with tax dollars.
Interesting enough, Silicon Valley Bank could have received a very early warning thanks to the oversight and scrutiny system the Obama administration put in place after the 2008 financial crisis. Sadly, the Trump administration has dismantled those oversight and regulatory procedures. All of this will lead to mudslinging at each other in the coming months as Democrats and Republicans argue over whose fault it all was.