The collapse of the Silicon Valley Bank (SVB) has had a significant impact not only on the United States but on businesses and countries around the world. As one of the largest and most successful banks in the world, SVB has played a vital role in providing financial services to many of the most innovative and high-growth companies in the technology sector.
The SVB collapsed on March 10th, 2023, and is marked as the largest bank failure since the financial crisis. Founded in 1983, SVB specialized in banking for tech startups. It provided financing for almost half of US venture-backed technology and health care companies. SVB was among the top 20 American commercial banks, with $209 billion in total assets at the end of last year.
A cause of this collapse was the Federal Reserve when they started raising interest rates a year ago to control inflation. The Fed took aggressive action, and tech stocks, which had benefited SVB, lost momentum as a result of higher borrowing costs. Long-term bonds that SVB and other banks bought during the time of extremely low, near-zero interest rates also lost value as a result of higher interest rates. The current 10-year treasury yield is approximately 3.9%, so SVB's $21 billion bond portfolio was yielding an average of 1.79 percent. At the same time, venture capital started to dry up, so startups had to take money from SVB. As a result, while the rate of customer withdrawals was increasing, the bank was sitting on a mountain of unrealized losses.
One of the most immediate effects of the collapse of SVB is the disruption of the financial services that the bank provides to its clients. Many of the world's leading technology companies relied on SVB for essential financial services such as lending, cash management, and investment banking. Companies are now finding it difficult to get a replacement that could provide comparable services, particularly in the short term.
The collapse of SVB has significant implications for the broader technology industry. The bank plays a critical role in financing many of the most innovative and high-growth companies in the sector. With the failure of the bank, it is much more challenging for these companies to secure the financing they need to continue to innovate and grow.
In addition to the impact on the technology industry, the collapse of SVB has broader implications for the global economy. As a major player in the banking industry, SVB has relationships with many banks and financial institutions around the world. The collapse of SVB has had various geopolitical implications. The bank has relationships with many companies and governments around the world, particularly in the technology sector. With the failure of this bank, it has led to a loss of confidence in the United States' ability to maintain its position as a leader in technology and finance. This loss of confidence raises some question of the United States' ability to maintain its global influence.
Beyond the impact on the United States, the collapse of SVB has affected other countries around the world. Many of the world's leading technology companies are headquartered outside of the United States, and these companies relied on SVB for essential financial services. It is now much more challenging for these companies to secure financing and access to financial services.
In conclusion, the collapse of the Silicon Valley Bank has significant complications for businesses and countries around the world. The disruption of financial services, the impact on the technology industry, and the broader geopolitical and economic implications is felt all over the world. The risks associated with its concentration in the technology sector, the regulatory environment, the competitive landscape, and external events cannot be ignored. Businesses and governments around the world should monitor the situation closely and prepare for how they are going to overcome this collapse.