A sense of crisis is spreading throughout the US tech industry due to the sudden collapse of Silicon Valley Bank (SVB), which is considered to be the ‘money line’ for Silicon Valley startups in the US. It is said to be the biggest banking failure since the bankruptcy of Washington Mutual Bank during the 2008 financial crisis. Some worry that it will become a ‘Lehman moment of 2’.
Founded in 1983, Silicon Valley Bank is a bank whose main customers are venture capital (VC) and startups in the western United States. However, on the 10th (local time), a large-scale bank with assets of 209 billion dollars (277 trillion won) collapsed in an instant within two days of the deposit withdrawal incident.
On the afternoon of Wednesday, the 8th, a large-scale financing plan provided an excuse for a bank run. Silicon Valley Bank, which holds a large amount of safe-haven U.S. Treasury bonds, has raised about 1.8 billion won in order to resolve the gap between the market price and the book value of banks due to a sharp rise in government bond yields (declining government bond prices) following the recent interest rate hike by the Federal Reserve. After a dollar (2.4 trillion won) loss, it sold securities such as bonds worth 22 billion dollars (30 trillion won). To secure liquidity, it also announced a plan to raise funds worth 2.25 billion dollars (3 trillion won). Deposits are declining, but additional funds are needed due to pressure to raise interest rates on deposits.
Fear spread quickly. The tech industry, which relies on borrowed management and risky investments that invest in future possibilities, is in a state of dryness in the recent high interest rate phase. This is why job cuts are concentrated in the tech industry. The Silicon Valley bank took the funding plan as a red flag, and according to the US media, it was known that major VCs recommended their customers to withdraw their deposits. On the 9th, 42 billion dollars (56 trillion won) was withdrawn, the bank’s funding plan failed, and the stock price plummeted by more than 60%.
Eventually, on the morning of the 10th, the California Department of Financial Protection and Innovation announced that it would close SVB due to insufficient liquidity and insolvency. Subsequently, the US Federal Deposit Insurance Corporation (FDIC) established a corporation called ‘Santa Clara Deposit Insurance National Bank (DINB)’ to transfer the assets of Silicon Valley Bank.
Attention is focused on the aftermath of the biggest bank collapse since 2008. Analysts representing the US economy, such as Princeton University professor Paul Krugman and former US Treasury Secretary Larry Summers, believe that it will not escalate into a ‘second Lehman’ crisis. This means that Silicon Valley bank customers are concentrated in the US tech industry, which means that the overall crisis transition is limited.
The problem is the US tech startups, which are already vulnerable. This is because Silicon Valley banks have been in charge of the central axis of the local ecosystem for 40 years, to the extent that about 44% of U.S. startups transact with the bank. The depositor protection limit is up to 250,000 dollars (330 million won), which is small for a corporate customer, so they are complaining that it is difficult to pay their employees right away. Even the possibility of a series of job cuts on Monday, the 13th, is raised.
According to the Wall Street Journal (WSJ), Y Combinator, a famous start-up accelerator, conducted an urgent investigation on 400 startups on the 10th, and about 100 responded that they could not pay salaries if the bank problem was not resolved within 30 days. Gary Tan, CEO of Y Combinator, told the WSJ that “startups as a whole are nervous,” and that new small startups will be affected.
The virtual currency industry, which has been vulnerable since the FTX incident, was also exposed to shocks again. On the 11th, the one-to-one link with the US dollar was broken with the news that ‘Circle’, the operator of the world’s largest stablecoin ‘USDC’, failed to withdraw an amount of 4 trillion won. Bloomberg News reported that “the FDIC is trying to pay deposits that exceed the deposit protection standard on the 13th by selling assets in a hurry.” Some have argued that a federal bailout is needed.
New York =
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.