![]() Once Silicon Valley revealed its huge loss on Wednesday, the tech industry panicked, and start-ups rushed to pull out their money, resulting in a bank run.īy late last week, Silicon Valley Bank was in free fall. To fulfill its customers’ requests, the bank had to sell some of its investments at a steep discount. The bank also had a significant number of big, uninsured depositors - the kind of investors who tend to withdraw their money during signs of turbulence. Because the bank’s business was concentrated in the tech industry, Silicon Valley Bank started to see trouble when start-up funding began to dwindle, leading its clients - a mixture of technology start-ups and their executives - to tap their accounts more. The bank was unique in ways that contributed to its rapid demise. Those once-safe investments looked a lot less attractive as newer government bonds kicked off more interest.īut not all of Silicon Valley Bank’s problems are linked to rising interest rates. This meant that Silicon Valley Bank was left in the lurch when the Federal Reserve, looking to combat rapid inflation, started raising interest rates. The bank hadn’t considered what was happening in the broader economy, which was overheated after more than a year of pandemic stimulus. But they were, it turned out, shortsighted. ![]() Those investments promised steady, modest returns when interest rates remained low. Silicon Valley Bank provided banking services to nearly half the country’s venture capital-backed technology and life-science companies, according to its website, and to more than 2,500 venture capital firms.įor decades, Silicon Valley Bank, flush with cash from high-flying start-ups, did what most of its rivals do: It kept a small chunk of its deposits in cash, and it used the rest to buy long-term debt like Treasury bonds. Here’s what we know so far about this developing story. The banks’ swift closures have sent shock waves through the tech industry, Washington and Wall Street. By Sunday night, regulators had abruptly shut down Signature Bank to prevent a crisis in the broader banking system. On Friday, Silicon Valley Bank, a lender to some of the biggest names in the technology world, became the largest bank to fail since the 2008 financial crisis.
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