- 16th largest bank in the United States
- Headquartered in Santa Clara, California
- Focus on start-ups and venture capitalists
- SVB is held by SVB Financial Group
How do Banks work?
Story of SVB
- SVB Activities
- Deposits of Startups
- Flushed with cash from high-flying startups
- Deposits were channelised towards investments (Held to maturity Securities)
- Federal Reserve began raising interest rates last year to cool inflation.
- Funding Winter
- Startups started to withdraw their money
- SVB was forced to sell some of its investments at loss
- Process of managing the use of assets and cash flows to reduce the firm’s risk of loss from not paying a liability on time.
- Some of the most common risks addressed by ALM are interest rate risk and liquidity risk.
Course of Action
- Deposit Insurance National Bank of Santa Clara was immediately set up to absorb SVB’s business.
- It has been formally placed in receivership under the Federal Deposit Insurance Corporation (FDIC).
- Depositors up to $250,000 will be eligible for insurance covered by FIDC; for the rest, a formula is being worked out.
- SVB being among the popular lenders in the start-up and venture capital space, their customers are likely to face near-term crunch in funding.
- A new entity called the Bank Term Funding Program (BTFP) will offer loans of up to one year to banks, savings associations, credit unions, and other eligible institutions.
Impact On India
- Y-Combinator one of the key clients of SVB has in turn invested in over 19 start-ups in India.
- For, mutual fund investors, those Indians investing in international and international hybrid funds will be affected.
- The funding winter, which was already catching up in the start-up space, may intensify.
- Employee retention challenge for startups.
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