Silicon Valley Bank (SVB) or the go-to for US tech startups suddenly collapsed in a 48-hour period last week, with $200 billion in bank deposits now stranded.
By Monday, regulators closed the California-based bank, marking the biggest failure of a US bank since the global financial crisis back in 2008.
And while the bank is quite large and its customers are scrambling to get their money bank, the impact on investors could be fairly limited if you do not hold a large number of US tech names.
Why did the bank collapse?
In a nutshell, SVB’s troubles were based on a few investments that it made which backfired and a classic bank run happened.
The company loaned money out to venture capital which went sour. On Wednesday, March 15th, SVB came out saying it was going to have to sell a bunch of bonds. But the bonds SVB sold were worth less than they were paying. This is because it had long-duration assets, which in a rising interest rate world is worth less.
Its $21 billion bond portfolio was yielding 1.79% according to reports, but current 10-year yields are up around 3.9%. Like in most of these situations, this led to depositors getting scared, looking to pull their funds.
By Friday, the bank had collapsed. Shares in the bank fell by 66%, and the Department of Financial Protection and Innovation closed the bank. The Federal Deposit Insurance Corporation (FDIC) stepped in as receiver.
US regulators bail out customers
As the fears of a contagion were spreading the FDIC has come in saying it will pay $250,000 to each depositor no later than Monday, as it sets up a receivership to liquidate the bank’s assets.
The FDIC says it is planning to advance more money to depositors later in the week.
As it currently stands, the FDIC retains all the assets from SVB with those with a loan expected to make payments as per usual.
Which US stocks are impacted?
The following are stocks of well-known companies that have publicly announced their exposure to SVB.
Lemonade said in a recent filing that it holds under $7,000 in cash with SVB and was not impacted by the bank’s collapse.
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Kylie Purcell is the senior investments editor at Finder. She has a background in business and finance news with previous roles at SBS, Your Money, TVNZ, Switzer Group and The Adviser magazine. Kylie has a Masters in International Journalism and a Graduate Diploma in Economics. When she's not writing about the markets you can find her bingeing on coffee.
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