Silicon Valley Bank (SVB), a major financial institution for technology startups, has collapsed following a spectacular run on the bank which sent shockwaves around the world.
Prior to last week’s run, SVB was the 16th largest bank in the US and claimed publicly to have “44 per cent of US venture-backed technology and healthcare IPOs” banking with it.
Over its 40-year lifespan, the bank had carved out a niche in the technology and venture capital world of Silicon Valley, providing loans and accounts for high risk ventures that traditional banks had kept at arm’s length.
On Friday local time, the US Federal Deposit Insurance Corporation (FDIC) began receivership of SVB after the bank’s attempted cash raise sent depositors running for the door.
The result was a weekend of uncertainty for the technology world as startups and mature technology companies suddenly found themselves without access to much-needed capital.
For blockchain company Circle, which operates the asset-backed stablecoin USDC, it was nearly disaster when almost a third of its US$9.7 billion cash reserves – the bulk of Circle’s assets are short-term US Treasury Bills – was locked away in the failed SVB.
News of Circle’s exposure to SVB led to mass sell-offs of USDC to the point where it risked losing its peg to the US dollar before eventually stabilising.
Video game company Roblox was likewise caught out, saying it held five per cent of its cash, or around $150 million, in SVB.
Media technology firm Roku said it was holding a just over a quarter of its US$1.9 billion in cash at SVB, saying at the time it “does not know to what extent” it would be able to recover the US$487 million.
Then there were the countless startups which, with millions in raised capital locked away in SVB, had runways reduced from months to weeks, not to mention the threat of unpaid staff and suppliers.
It was a calamity that threatened Australian shores, with Treasurer Jim Chalmers saying he was “aware that some Australian firms have been impacted” and that the government “was working closely with our regulators as well as the tech sector to better understand the implications for the industry as the situation evolves”.
By Monday morning, the ASX Price Sensitive Announcement feed was filled with companies reporting their exposure – or lack thereof – to SVB.
Among those was software company Whispir which had $173,000 in the back, an amount that was below the US$250,000 insurance threshold, and accounting software company Xero which, a week after laying off up to 800 staff, said it had US$5 million in the collapsed bank but that there was “no material exposure”.
Tech darling Canva was also caught up in the financial disaster. A spokesperson refused to disclose the sum, but said the company was “in the fortunate position of having the majority of our cash outside of [SVB’s] banking system and have safety nets in place to ensure our operations aren't compromised”.
Then, as the new week began in the US, the FDIC, US Treasury, and Federal Reserve came to depositors’ rescue.
In a joint statement, the three organisations said they would protect depositors and restore public confidence in the banking system by creating a ‘bridge bank’ which would honour all liabilities of the failed bank.
“All depositors of the institution will be made whole,” the statement said. “Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed.”
SVB’s fall was shortly followed by the collapse of Signature Bank which, Reuters reported, owed a quarter of its deposits to the crypto sector as recently as September last year.
Earlier this month, crypto-friendly bank Silvergate went into voluntary liquidation citing “recent industry and regulatory developments”.