Silicon Valley Bank, which provided banking services to nearly half of the country’s venture capital-backed technology and life-science companies, has collapsed in the largest US banking failure since the 2008 financial crisis. The bank’s failure has sent shockwaves through the tech industry, Wall Street, and Washington.

Why did Silicon Valley Bank fail?

Silicon Valley Bank invested its deposits into long-term debt like Treasury bonds, but it did not consider the impact of the pandemic stimulus, inflation, and rising interest rates on the bank’s investments. As a result, its investments were no longer safe, causing start-up funds to dwindle and clients to begin withdrawing their money, ultimately leading to the bank’s collapse.

The fallout and government takeover

The Federal Deposit Insurance Corporation insured deposits up to $250,000, but Silicon Valley Bank had significant numbers of large, uninsured depositors. The failure of Silicon Valley Bank panicked the tech industry, and start-ups rushed to pull out their money. The Federal Deposit Insurance Corporation announced it would take over the 40-year-old institution after the bank and its financial advisers had tried – and failed – to find a buyer to step in.

What happens next?

The government may consider safeguarding uninsured deposits at the bank if efforts to find a buyer fail. While customers with deposits of up to $250,000 will be made whole, there is no guarantee that depositors with larger amounts in their accounts will get all of their money back.

HSBC acquires Silicon Valley Bank UK wing

HSBC has acquired the UK wing of Silicon Valley Bank, which had collapsed in the biggest US banking failure since 2008. The purchase means that businesses can now access money that had been at risk of being lost. The UK government and the Bank of England led discussions to secure the deal, which cost HSBC just £1.

Source: Adapted from The New York Times