On Friday, Silicon Valley Bank (SVB) was closed by Californian regulators and sent into receivership by The Federal Deposit Insurance Corp. (FDIC) is named as the receiver by the California Department of Financial Protection and Innovation.
SVB’s problems began after its parent company, SVB Financial Group, announced the selling of $21 billion worth of securities from its portfolio and holding a $2.25 billion share sale. This came after a high number of deposit outflows at the bank due to a downturn in the startup industry, as per analysts.
SVB’s share prices plunged 60% on Thursday and its bonds recorded all-time high declines. SVB’s Chief Executive Officer - Greg Becker held a virtual meet with the bank’s clients, including venture capital investors, assured them and asked them to “stay calm” in order to avoid a run on the bank.
*Run on the bank refers to an occurrence where a lot of people take their money out of a bank or financial institution because they are afraid that the bank will collapse.
In India, Union minister Rajeev Chandrasekhar will be meeting all Indian startups that are affected by the takeover of Silicon Valley Bank to understand the impact on these startups and will offer government assistance in order to overcome the losses.
“The closure of SVB Financial is certainly a disruption for the startups across the world. Startups are an integral part of the New India economy. I will meet with Indian startups this week to understand the impact on them and how Narendra Modi’s government can help during this crisis,” the union minister of state for skill development, entrepreneurship, and electronics and information technology said in a tweet.
SVB Financial Group Inc.’s shutdown and takeover by banking regulators on Friday can be traced back to the rise in interest rates by the U.S. Federal Reserve. The Federal Reserve Bank raised interest rates last year in order to fight inflation. This increase in interest rates has caused the IPO market to shut down for many start-ups. Some Silicon Valley Bank clients withdrew money to meet their liquidity needs.
The sudden collapse of The Silicon Valley Bank has become the largest US bank to fail since the 2008 financial crisis leaving billions of dollars belonging to companies, investors and depositors in a stranded position.
About Silicon Valley Bank (SVB)
Silicon Valley Bank (SVB) is a bank that focuses on providing financial services to technology and life science companies, as well as venture capital and private equity firms. The bank was founded in 1983 and is its headquarters are located in Santa Clara, California.
SVB offers various services, including deposit and payment services, lending, treasury management, foreign exchange, and investment services.
SVB has had a reputation for being a leading bank for startups and has been involved in the early funding of many well-known companies, including Twitter, Uber, and LinkedIn. The bank has expanded beyond its Silicon Valley roots and now has offices in key technology hubs around the world.
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