Silicon Valley Bank (SVB) Collapse - Economy Skip to main content

Silicon Valley Bank (SVB) Collapse – Economy

By March 20, 2023May 22nd, 2023Announcement, Current Affairs, Economy, GS 3

Silicon Valley Bank (SVB) Collapse


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SVB Collapse

  • 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
    • Loans
  • 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

Asset/Liability Management

  • 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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