"Silicon Valley Bank's Collapse Sends Shockwaves Through Financial Industry"

On Friday, Silicon Valley Bank, one of the largest lenders to technology companies, became the biggest bank to fail since the 2008 financial crisis. The California Department of Financial Protection and Innovation shut down the bank, appointing the Federal Deposit Insurance Corp. (FDIC) as the receiver. Nearly $175 billion in customer deposits now fall under the control of the FDIC.

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

Silicon Valley Bank’s implosion is attributed to the bank buying huge amounts of bonds over a year ago, which worked well until the Federal Reserve began raising interest rates to cool inflation. At the same time, startup funding began to dry up, putting pressure on many of the bank’s clients, who then started withdrawing their money. The bank was forced to sell off some of its investments to pay these requests, at a time when their value had declined. In its surprise disclosure on Wednesday, the bank stated it had lost almost $2 billion.

Though Silicon Valley Bank is small compared to other banks, its $209 billion in assets is dwarfed by the over $3 trillion held by JPMorgan Chase. However, bank runs can occur when customers or investors panic and start withdrawing their deposits. The fear is that Silicon Valley Bank’s failure will scare off customers of other banks. Shares of First Republic Bank and Signature Bank were down more than 20% on Friday. Conversely, shares of the nation’s largest banks, such as JPMorgan, Wells Fargo, and Citigroup, nudged higher on Friday after a slump on Thursday.

Nearly half of venture capital-backed technology and life-science companies were banking with Silicon Valley Bank, according to its website. Over 2,500 venture capital firms, including Lightspeed, Bain Capital, and Insight Partners, relied on the bank for banking services. As entrepreneurs try to make sense of the bank’s implosion, those whose funds are frozen are turning to loans to make payroll.

In conclusion, the collapse of Silicon Valley Bank has rocked the financial industry, with the FDIC taking control of $175 billion in customer deposits. The bank’s implosion was attributed to buying large amounts of bonds more than a year ago, compounded by startup funding drying up and investors withdrawing their money. Nearly half of venture capital-backed technology and life-science companies were banking with the institution.