Silicon Valley Bank collapses: largest US bank collapse since 2008 – Software Craftsmanship Weekly vol. 125.

I think I’d rather tell you again and again about news in generative AI. Unfortunately, after a series of layoffs, lack of investment, and recession, the next horsemen of the apocalypse that just invaded the tech world, we are now seeing banks failing – and ones with strong ties to tech industry.

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Silicon Valley Bank (SVB) was a bank specializing in serving companies in the technology, startup, venture capital and private equity sectors. The bank was founded in 1983 in Santa Clara, California, and has its headquarters there, with branches in other cities in the United States, Europe and Asia. SVB specialized in serving startups, and its employees have a lot of experience working with these companies. As a result, the bank was able to have a good understanding of the specifics of startups’ businesses and offer them appropriate products and services. Silicon Valley Bank also created an ecosystem for companies, in which it offers them access to investors, business advisors and other entrepreneurs. SVB actively collaborated with other entities in the technology sector, such as gas pedals, venture capital funds and corporate clients. This has enabled the bank to help startups establish partnerships with other companies and institutions.

Significant institution – on Monday, March 6, received the award for Best US Bank from Forbes #PoorlyAgedThings

This specialization proved to be a killer for the bank. Silicon Valley Bank had been in financial trouble for some time, as many of venture capital (VC) funds had exhausted their funds, what resulted in the level of VC funding dropping significantly. And in the startup industry, no funding means a smaller amount of money in the accounts. This caused Silicon Valley Bank’s deposits to shrink faster than the bank had anticipated, so they decided to sell $21 billion in shares at a loss of $1.8 billion, and planned to sell $2.25 billion in new shares. The bank tried to reassure investors that the stock sales were aimed at increasing its financial flexibility, but many of the theirs customers, in a scare, began moving their funds elsewhere, which only accelerated the process of reducing the institution’s financial security.

Although suggestions on what to do with these funds were sometimes…. creative.

After failing to raise enough funds, Silicon Valley Bank considered selling itself to a bigger player, but government regulatory agencies shut it down within hours. This is a huge blow and – admittedly – the government’s FDIC insures bank deposits up to $250,000, but most companies have deposits in excess of this limit (money raised from investors was kept there, among other things). According to preliminary calculations, as much as 96% of deposits were uninsured by the federal or state government. The only chance for quick access to the money is (fortunately – reportedly quite likely) if the bank is bought by a larger entity. SVB’s collapse is the largest bankruptcy in the US since 2008 – it was the 16th largest bank in the United States. The situation is being referred to as Lehman Brothers 2.0 – as a reminder, it was the collapse of this bank that triggered the financial meltdown in 2008. How strong a blow will it be? That remains to be seen, for expert opinion is sharply divided. A good collection, very diverse in its tenor, of analyses can be found in an article on LinkedIn, which summarizes statements on the subject – ranging from strongly Cassandrian to reassuring.

And it’s only the first quarter.

SVB’s closure has dire “timing” and comes shortly after cryptocurrency-focused Silvergate Capital announced plans to wind down operations and liquidate its bank due to a recent wave of financial problems. Shares of cryptocurrency bank Silvergate Capital fell nearly 31% after the announcement. The bank provided infrastructure for the cryptocurrency ecosystem, including setting up a payment network that allowed instant fiat transactions between two parties. However, the bank’s relationship with FTX, a major customer, has led to concerns about regulatory action and a crisis of confidence in the bank. Nearly 70% of Silvergate’s deposits left the bank in Q4 2022, and rising interest rates put most of its bonds underwater.

Maybe that advice with Starbucks loyalty cards was a pretty good one after all

PS: I’m thinking of slightly changing the formula so that, at least from time to time, Software Craftsmanship issues will have a single main theme, instead of tossing you interesting links here (that’s what you have for, after all), I’m going to try to do slightly broader, more in-depth reviews by topic.