Why did the Silicon Valley Bank fail?
Why did the Silicon Valley Bank fail?
- Recently, Silicon Valley Bank, One of the biggest names in the IT industry’s bank went bankrupt, making it the worst bank collapse since the2008 financial crisis.
- Silicon Valley Bank, flush with funds from successful startups, made substantial bond purchases more than a year ago. Like other banks, Silicon Valley Bank held onto a portion of the deposits while investing the remainder in the hopes of making a profit.
- Up until the Federal Reserve started raising interest rates last year to control inflation, that had been effective. A number of the bank’s customers felt intimidated at the same time that startup funding started to dry up and started to withdraw their money. investors in technological start-ups is the Silicon Valley Bank’s main clients and they became less willing to take risks as a result of the rising interest rates.
- Silicon Valley Bank was required to sell off some of its interests at a time when their value had fallen in order to satisfy those requests. Silicon Valley Bank sold a $21 billion portfolio that was primarily made up of US Treasury bonds at a staggering $1.8 billion loss. The Silicon Valley bank announced its unexpected loss thereafter saying it was close to $2 billion.
- It announced it would sell $2.25 billion in ordinary equity and preferred convertible stock to close the $1.8 billion financial gap.
- As a result of their panic, the investors immediately withdrew their funds from the bank on the advice of venture capital firms. This alarmed the bank’s other significant investors and caused the proposal to sell stocks to be abandoned.
- Silicon Valley Bank made urgent attempts to identify alternative funding sources and even entertained the idea of selling the business. Yet despite last-ditch efforts, it was eventually forced to shut down by regulators, after which it was handed over to the Federal Deposit Insurance Corporation .
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