![]() By mid-day, the California Department of Financial Protection appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. On March 10, trading in SVB shares was halted. That necessitated SVB to contemplate additional capital raises, which caused the price of SVB’s stock to fall dramatically on March 9, which led to more withdrawals of deposits. Moreover, in so doing, SVB realized a loss of nearly $2 billion on these securities, leading to the company’s decision to sell equity in its firm in an attempt to further shore up its own financial position.Īs news of this plan broke, SVB faced additional withdrawals of deposits. As a result, these companies began to withdraw their deposits to cover their liquidity needs.Īs deposits at SVB shrank and as their securities dropped in value, SVB evaluated its own funding needs, deciding in early March to sell over $20 billion of securities. Around the same time, many of SVB's customers were feeling pressure, too as business and funding activity slowed. But as the Fed began raising interest rates in 2022, the value of SVB’s securities portfolio declined. Instead, the bank invested these deposits mostly in long-term, fixed-income securities.Īt the time of their investment, these securities seemed safe. In the case of SVB, with its torrid growth of deposits, it was unable to lend out its deposits efficiently. Most banks are in the business of gathering deposits that can be lent out to others in need of capital. By mid-2021, SVB was experiencing deposit growth of over $45 billion per quarter. In mid-2020, SVB’s deposits surged to over $20 billion per quarter. As evidence, in 2019 SVB experienced deposit growth of roughly $5 billion per quarter. Until very recently, SVB counted nearly half of all VC technology and health-tech companies and more than 70% of US venture capital firms as clients.įollowing the economic collapse sparked by COVID-19, SVB’s customers experienced rapid growth, which saw demand for SVB’s services to experience similar rapid growth. Still, there are some parallels along with other risks that need to be acknowledged, too.įounded in 1983, SVB was viewed as the “go-to” bank within the venture capital (VC) ecosystem, providing banking services to VC-backed startups, VC firms and funds, and to venture capitalists themselves. Many important reasons lead us to think that today is not the same as 2008. Today, in light of the collapse of Silicon Valley Bank (SVB), some are understandably asking: “Is this time the same?” The answer, like many things, is nuanced. In subsequent weeks, other financial institutions would shutter, be acquired or collapse, ultimately sparking a full-fledged crisis engulfing the global financial sector and causing the economy to experience the largest decline since the Great Depression in the 1930s. “This is not good,” I muttered to my wife, the understatement of the decade I would later realize. ![]() What’s more, the purchase was, in part, subsidized by the Federal Reserve (the Fed), effectively protecting the acquiror from any unforeseen surprises uncovered later. Morgan was acquiring Bear Stearns, a prominent Wall Street bank, for less than 10% of Bear Stearns’ market value just two days before. That must be a typo,” I said to myself, recalling that Bear Stearns’ stock had traded near $100 per share relatively recently.Īfter checking other news outlets, I soon realized that the headline was not an error. Morgan to acquire Bear Stearns for $2/share” a headline read. Our youngest son was just shy of his first birthday, and after a long day of travel, late that Sunday night, I recall glancing at my Blackberry (not the fruit, but a predecessor to Apple’s iPhone – a story for another day). I remember one spring break vacation 15 years ago especially well. ![]() March is synonymous with spring break for many families (and college students) for my family, March is no different. The answer is largely "No." But there are risks that need to be acknowledged, too. ![]()
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