Silicon Banks Collapse

This month the Silicon Valley Bank (SVB) collapsed and hot on its heels was the Signature Bank in a grim reminder of the US banking and financial sector rout in 2008 mostly due to the sub prime mortgage phenomena. But people never learn. The entire loan portfolio of SVB was in the tech sector .Emboldened by the fabulous revenues accruing to digital technology companies in the COVI-19 or pandemic era investors flocked into the digital sector. Startups mushroomed and without conducting due diligence SVB loaned to these entrepreneurs in otherwise risky endeavors. The recent crash of the cryptocurrency sector may have compelled depositors to withdraw in panic although deposits are protected through the Federal Deposit Insurance Company’s arrangements, funded by member banks, and the depositors are assured that their money is secure.

Credit Boston herald

Swift Intervention by Regulators

This time around US regulators intervened swiftly and forfeited assets of these banks after a run commenced on deposits. SVB was a pretty decent sized bank  with almost 40,000 customers and a deposit base of around $ 175 billion in total deposits .Nearly all customers were digital technology companies or as the much bandied phrase “startups “ became fashionable . These tech companies or startups are woven into modern everyday digital life and as a consequence of the collapse of these banks a host of services may be interrupted in the short to medium term.

Credit NBS News

Will Startups become Extinct

Credit Smithsonian Magazine

SVB invested its short term assets which astronomically surged from $ 60 billion to almost $ 200 billion in a  span of two years into the otherwise safe haven of US government bonds . What hastened the bank’s financial demise was when the US Federal Reserve started raising interest rates last year to curb rising inflation which in turn devalued the long term US government bonds. These disastrous investments may have been made as  startups are projected as assured successes.A likely scenario can be that financial institutions and banks will henceforth shy away from lending to startups until and unless due diligence is conducted thus making the process of obtaining financing  arduous which militates against the essence of instant startups.The world may be looking at the extinction of startups it has become accustomed to.