the staff of the Ridgewood blog
Ridgewood NJ, regulators shut down Silicon Valley Bank on Friday, marking the biggest bank failure since the 2008 financial crisis and sending shockwaves across the tech world. The Federal Insurance Corporation (FDIC) created a National Bank of Santa Clara to hold deposits and other assets of the failed Silicon Valley Bank, but the abrupt closing is impacting tech firms that face immediate effects, like ensuring employees get paid. More than 93 percent of the $161 billion deposited at Silicon Valley Bank is not insured by the FDIC, according to a Bloomberg News analysis.
Silicon Valley Bank (SVB), established four decades ago, catered to the startup and venture capital-funded tech world. Its clients included brands such as Shopify, ZipRecruiter and venture capital firm Andreessen Horowitz, according to the bank’s website. Wedbush analyst Dan Ives called it a “nightmare situation.” “This will have a massive ripple impact across the tech ecosystem and Silicon Valley private company artery. SVB is a foundational piece of the tech startup community and will have a constrained impact on funding for tech startups going forward,” Ives said in an email.
“The road to hell is paved with easy credit” ; Silicon Valley Bank was hit hard by the Federal Reserve’s series of rising interest rates. It’s the latest way the interest rates have hit the tech sector.Tech companies and the ecosystem they are created in are highly sensitive to increases in interest rates because many companies, particularly startups, operate on high levels of debt. Venture capital and other riskier forms of investment also become less profitable as businesses face higher borrowing costs, and the steep decline in crypto values also sapped billions from many tech businesses.
The bank lost $1.8 billion from the sale of US treasuries and mortgage-backed securities due to rising interest rates. It then announced a plan to safeguard its business by selling $1.25 billion of its common stock to investors, with the goal of raising money to stabilize itself. The response to its announcement was overwhelmingly negative.
Treasury Secretary Janet Yellen convened a meeting of federal banking regulators Friday, the Treasury Department announced, to discuss the ongoing damage caused by the collapse of Silicon Valley Bank.
SVB’s blowup blindsided most of the market, but at least one corner of Wall Street spied trouble ahead. Bets against regional banks have been winners of late as concerns about balance sheets started rippling through the financial system. For weeks, short sellers pushed bearish interest in a regional bank exchange-traded fund higher, until it peaked at about 78% of shares outstanding—the highest level in at least a year.
The SVB failure is stoking fear for their savings. People with money in commercial banks and retirement accounts may hear echoes of the financial crisis. Many are wondering if their money is safe.
Adam Hardej Head of Private Markets at VC firm Stonks said, “This is an unfortunate time for the startup ecosystem at large. Although we might joke and make light of the situation (as we do with most issues), I want to communicate that we are painfully aware of the effects this will have on real people, their businesses, and the ecosystem we’re all a part of. We take it all very seriously. We all know people who are having to deal with this and we are doing what we can to help.’
Hi –
The unfortunate SVB situation has presented major challenges to many companies.
TechUnited:NJ, in partnership with the NJ Economic Development Authority, want to see if we might be able to stand up any programs and/or funding sources to help companies in our community.
If you have been impacted, please fill out this survey to share feedback and what we might be able to do to help. Forward this note to others who have been impacted as well.
While we always love to hear from you, please fill out the survey with your feedback, instead of replying here.
Thanks,
Aaron
CEO, TechUnited:NJ
Here we go again.
Thanks Sleepy Joe !
The Dems will never accept that, but they were all over Bush for the 2008 crash because it happened on “his watch”. Never mind that their liberal policies that granted mortgages to the hopelessly dysfunctional caused it.