Silicon Valley Bank’s sudden closure sends shockwaves through financial markets

On Friday, Silicon Valley Bank had its operations shut down by California banking regulators. The Federal Deposit Insurance Corporation (FDIC) was then appointed as the receiver to handle the bank’s assets at a later time.

The news shocked the financial world with its sudden collapse, becoming the largest bank to fail since the 2008 financial crisis. The bankruptcy has sent shockwaves through global markets and left countless companies and investors in limbo with billions of dollars at stake.

Santa Clara-based lender Silicon Valley Bank, the 16th largest bank in the US with $209 billion in assets, collapsed abruptly due to the impact of the Federal Reserve’s interest rate hikes on the start-up space, in which it was a major player.

Silicon Valley Bank’s attempt to offset the loss of deposits by raising capital resulted in a $1.8 billion loss on Treasury bonds, which were impacted by the Federal Reserve’s interest rate hikes.

The failure underscores the fragility of the banking system and has prompted calls for increased regulation to prevent future catastrophes.

Highlights

• California regulator closed SVB and also took control of SVB’s customer deposits.
• SVB focused on lending to start-ups; branches are to reopen Monday.
• FDIC to sell bank assets; ‘chaos’ reported amid withdrawals.
• Bank shares fall in U.S. and Europe.
• Crisis exposes banking ‘vulnerabilities’ amid rising rates.
• Bloomberg: Almost 50% of US venture capital-backed startups had ties to Silicon Valley Bank.
• Fortune: Days before Silicon Valley Bank’s historic collapse, its CEO sold $3.6 million worth of stock in what is being considered a potentially problematic transaction.

Silicon Valley Bank’s popularity among startups

Silicon Valley Bank’s popularity among startups and venture capitalists extends beyond US borders, with companies and investors worldwide choosing the bank as their top choice for financial services.

Startup founders from around the globe are working against time to move their money out of Silicon Valley Bank (SVB), which was shut down by US regulators last night, in what is being called the largest bank failure since the 2008 Lehman bankruptcy, which sparked off a global financial crisis.

Roblox Corp and Roku Inc, both of whom had significant deposits at Silicon Valley Bank, have announced that they had hundreds of millions of dollars invested in the institution.

Alternative digital banks for Startups

As startups and investors seek alternative banking options in the wake of Silicon Valley Bank’s sudden collapse, Brex has emerged as a potential solution, among others. The financial services provider, valued at $12.3 billion, is expediting the process for founders looking to set up bank accounts for their businesses and is reassuring customers that it has not been impacted by the “current banking volatility.”

In fact, Brex has reportedly received billions in deposits from former Silicon Valley Bank customers overnight.

The company has also offered VIP support to those seeking to switch banks, making it an attractive option for startups looking for a quick and secure banking solution amidst the uncertainty of recent events.

For its part, fintech company Mercury, which has been specializing in banking services for startups since 2019, has reported a surge in inbound interest from potential clients.

There are several alternative digital banks for startups to consider beyond Silicon Valley Bank, including:

1. Brex: A financial services provider that offers credit cards and cash management solutions to startups.
2. Mercury: A banking platform that provides financial services for startups, including bank accounts, payment processing, and cash management.
3. Chime: A mobile banking platform that offers no-fee banking services and cash management tools.
4. Novo: A digital bank that provides business banking services and integrations with popular accounting and financial software.
5. BlueVine: A fintech company that provides banking services to small businesses, including checking accounts, loans, and lines of credit.

Silicon Valley Bank will reopen its branches on Monday following its sudden collapse. The bank’s closure had left many clients unsure of the fate of their investments, but this news brings some relief. Many are now watching closely to see how the bank will recover from this event.