On Friday, March 10, federal regulators took control of Silicon Valley Bank, the biggest U.S. bank to collapse since the 2008 global financial crisis.
The failure of the “silicon valley bank” is being vouched as a major event that has left a lasting impact on the financial sector. The failure of the bank has been said to be caused by the lack of proper regulations and oversight.
Silicon Valley Bank (SVB) is a financial institution that primarily serves the technology and innovation industries in the United States. Founded in 1983, SVB was known for providing innovative banking services to startups and entrepreneurs, including venture debt, corporate finance, and venture capital. However, in recent years, the bank has faced several challenges, including a significant loss in its investment portfolio and an increase in bad loans, leading to its failure in 2023.
The primary reason for SVB’s failure is its exposure to the technology sector, which suffered significant losses during the COVID-19 pandemic. The bank’s investments in technology startups, venture capital funds, and other tech-related assets proved to be highly risky and volatile, as the pandemic caused a severe economic downturn and disrupted global supply chains. As a result, many of SVB’s investments lost value, leading to significant losses for the bank.
Another factor contributing to SVB’s failure was its high level of bad loans. The bank had a significant exposure to the energy sector, which suffered from the collapse in oil prices during the pandemic. This exposure led to a surge in bad loans, as many of the bank’s energy clients struggled to repay their debts. In addition, SVB’s lending practices were highly concentrated in a few sectors, making the bank vulnerable to economic shocks and downturns.
SVB’s failure also highlights the challenges of operating a niche bank focused on a specific industry. While SVB’s focus on the technology sector was a key part of its success in the past, it also made the bank highly vulnerable to industry-specific risks and trends. The pandemic and the resulting economic downturn exposed these vulnerabilities and made it difficult for the bank to sustain its business model.
In conclusion, SVB’s failure was primarily driven by its exposure to the technology sector and its high level of bad loans. These factors, combined with the challenges of operating a niche bank focused on a specific industry, made it difficult for the bank to weather the economic storm caused by the pandemic. The failure of SVB serves as a cautionary example for other niche banks and highlights the importance of diversification and risk management in the financial sector.
What should the world learn from this collapse?
The collapse of Silicon Valley Bank has prompted fears of a wider contagion throughout the financial industry. However, the spread of financial distress remains limited, in part because Silicon Valley Bank served a narrow swathe of the economy concentrated in startup tech firms, says some experts.
While on the other hand, some experts caution that the situation of the financial industry may continue to be in flux and escalate significantly.
India SVB staff rush into job market
The total strength at SVB India is said to be around 800 employees. SVB had significantly increased capacity in the country over the last 2 years. According to Anshuman Das, CEO and co-founder of Careernet, there is an upsurge witnessed in the experienced pool of employees, within 10-15 years of experience, actively looking out in the market for jobs.
