Silicon Valley lender crashes: Is it Lehman Moment for startups?

NEW DELHI: Silicon Valley Bank (SVB), a lender to some of the biggest names in the technology world, became the largest bank to fail since the 2008 financial crisis, on Friday. The move put nearly $175 billion in customer deposits under the control of the Federal Deposit Insurance Corp.

The California Department of Financial Protection and Innovation shut down SVB less than two days after the bank tried to persuade clients not to pull their money over concerns it was running low on available cash. The regulator appointed the Federal Deposit Insurance Corp as the receiver.

The FDIC created a new bank, the National Bank of Santa Clara, to hold the deposits and other assets of the failed one. The agency said that the new entity would be operating by Monday morning and that checks issued by the old bank would continue to clear.


What is SVB?
Silicon Valley Bank (SVB), a little-known bank outside of California, is deeply embedded in the US startup scene. It focuses on tech startups.
What's happening at SVB?

The bank announces a $2.3 billion share sale to shore up its finances prompted by high deposit outflows triggered by a downtown in the startup world.

What impact did this have?
Things went rapidly downhill as the stake sale announcement spooked number of venture capitalists, who instructed their portfolio companies to shift cash from the bank. SVB stock crashed by half on Thursday.

How SVB woes spread?

Major US banks like Bank of America, Wells Fargo and JP Morgan all slid at least 5%, wiping out over $80 billion in mcap. Shares of Asian banks followed Wall Street peers lower on Friday.

So what happens next?
SVB has been shut by regulators, who will dispose of its assets to protect insured depositors. SVB's receivers (or custodian) FBIC said the bank had $209 billion in assets and $175 billion in deposits.