Wednesday, October 4, 2023

Silicon Valley’s largest bank went bankrupt: what happened and how it affects the world’s largest companies

Last Friday he reported from San Francisco that Silicon Valley Bank failed after trying to refinance the bank for $2.5 billion, taking along the technology sector and savers. Thus it became the second largest bank failure in United States history.

Silicon Valley Bank was the sixteenth largest bank in the United States and days before the announcement, it reported problems due to lack of liquidity.

As a result, depositors and technology companies withdrew their money over the past week, leading to a bank run due to a lack of confidence in the entity.

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On the other hand, SVB (Silicon Valley Bank) shares fell 60% on Thursday and suspended its listing on Wall Street. Added to this was the fact that the S&P 500 also fell 7.5% (the biggest drop in two years) on the same day the state of California closed the bank.

Silicon Valley Banks and Startups

The bank was important to the technology sector because of its ties to small businesses and Silicon Valley startups. Its role was to be a lender to these types of companies, thus being the banking partner of half of the companies in the technology and health sectors in the United States.

Gary Tan, CEO of Y Combinator, summed up the fact: “This is an extinction-level event for startups.”

Y Combinator is the startup that runs Airbnb, DoorDash and Dropbox, and like other companies has already informed that they will not be able to pay their salaries without access to SVB money.

What steps will the government take?

The United States Federal Reserve announced through a statement that they would support bank deposits and take emergency measures for depositors to recover their money.

Meanwhile, officials from the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation released the following reports:

“Today we are taking decisive action to protect the American economy by strengthening public confidence in our banking system. This step will ensure that the American banking system continues its vital functions of protecting deposits and providing credit to homes and businesses. in a way that fosters strong and sustainable economic growth.”

The heads of the agencies concluded the statement by saying that: “The US banking system remains resilient and on a solid foundation”.

Similarly, the United States has so far been the only one to announce measures, as have Silicon Valley banks with branches in China, Denmark, Germany, India, Israel and Sweden.

Panic has been rising globally over the startup crash, and the numbers across global markets show how SVB’s collapse is affecting them. The event was not seen for over a decade, when Washington Mutual Bank declared bankruptcy.

(tags to translate) silicon valley

World Nation News Desk
World Nation News Desk
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