Silicon Valley Bank, a financier for a prominent name in the technology industry, collapsed on Friday, making it the biggest bank failure since the financial crisis of 2008. Its ripple effect is being felt across the economics world. As a result the Federal Deposit Insurance Corp now has control over customer deposits worth nearly $175 billion. The Silicon Valley Bank debacle hit the global startup ecosystem. Here are the details regarding this ongoing debacle event.

The financial regulators of California, the Department of Financial Protection and Innovation closed down Silicon Valley Bank on Friday, shortly after the bank urged its customers not to withdraw their money due to fears that it did not have enough cash available. The Federal Deposit Insurance Corp. was appointed by the regulators to take over the bank operations. Many startups that relied on the bank for funding and support are now left wondering what their future holds. 

The Federal Deposit Insurance Corporation (FDIC) established a fresh financial institution named the National Bank of Santa Clara to manage the deposits and other possessions of the failed bank. As per the news release from the agency, the newly formed entity will be functional from Monday morning onwards and checks released by the former bank will still be processed. American President Joe Biden gave a statement on Monday, he said,  “Thanks to the quick action of my administration over the past few days, Americans can have confidence that the banking system is safe. Your deposits will be there when you need them.”

Silicon Valley Bank had a surplus of funds from successful startups and decided to invest a significant portion of it in bonds over a year ago. Similar to other banks, they retained a small portion of the funds as deposits and utilised the remaining amount for potential returns through investment. The strategy was successful until the Federal Reserve increased the interest rate in the past year to reduce inflation. At the same time, there was a downfall in startup funding, causing strain on several of the bank’s customers and leading to their withdrawal of funds. To meet these requests, SVB had to sell some of its investment, which had decreased in value at the time. In a surprising announcement on Wednesday, the bank revealed a loss of almost $2 billion. 

Although Silicon Valley Bank only has $209 billion in assets compared to JP Morgan Chase’s over $ 3 trillion, there is still a possibility of bank runs occurring if customers or investors become panicked and withdraw their deposits. The main concern at the moment is that if Silicon Valley Bank fails, it could lead to customers losing trust in other banks and causing them to withdraw their funds. 

On Friday, there was a decline of over 20% in the stock prices of the First Republic Bank and Singapur Bank, which are located in San Francisco and New York respectively. However, the stock prices of several major banks such as JP Morgan, Citigroup and Well Fargo, which had dropped on Thursday, slightly increased on Friday. Many economic experts say that the fallout of SVB has not directly hit the Indian markets, because the banking system is in a strong hold on asset liabilities management.

Amidst the confusion surrounding the collapse of Silicon Valley Bank, which served almost half of the technology and life science companies backed by venture capital, as well as over 2,500 venture capital firms such as Bain Capital, Lightspeed, and Insight Partners, some of the entrepreneurs who have had their funds frozen in the bank are resorting to borrowing money to meet their payroll obligations.