Startups in turmoil as Silicon Valley Bank declares bankruptcy

An aggressive interest rate hike causes the ruin of one of the most prominent banks in the United States.

Startups in turmoil as Silicon Valley Bank declares bankruptcy
Pedro Domínguez Rojas

Pedro Domínguez Rojas

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The world is going through a crisis, and inflation is having a worsening effect on the business world. At the end of January, we explained to you the possible reasons why large companies in the technology industry such as Meta, Microsoft, Twitter, Spotify, ByteDance and IBM may have laid off thousands of employees to cope with huge revenue losses.

Now, inflation has taken one of the largest banks in the United States by storm: Silicon Valley Bank (SVB), which collapsed this weekend and forced the Federal Government to seize its deposits. The result? The largest bank failure since the 2008 financial crisis.

A rate hike that pleased no one

Already considered the second biggest financial crisis in history, Silicon Valley Bank’s collapse began on Wednesday of last week, after the bank surprised its investors by raising interest rates in order to raise $2.25 billion to shore up its balance sheet. In the panic and hysteria of investors, the bank fell into the abyss.

The bank found itself short of capital in the face of the numerous and large withdrawal requests that followed the rate hike, and was even forced to sell all of its available-for-sale bonds at a loss of $1.8 billion, according to CNBC.

SVB shares did not stop plummeting on Thursday due to the lack of confidence of the startups that deposited their capital there, despite the fact that the CEO himself, Greg Becker, contacted them by phone in order to “keep calm”. A broken confidence that went further after Becker could not assure his clients that this capital increase would be the last one carried out by the bank.

The death of SVB was already almost guaranteed after large funds such as Union Square Ventures and Coatue Management contacted startups, instructing them to withdraw their money from the bank for fear that a “corralito” would be created and they would be unable to withdraw their funds. A mass hysteria that was further aggravated by the social networks, which echoed these events.

After a plummeting share price, SVB’s management searched on Friday for a buyer to put an end to its hell, but the huge outflow of deposits made their efforts impossible. Many of the startups that failed to withdraw their money do not now know when they will be able to get it back, and the situation could lead to contagion in other institutions in the country or even abroad.

Pedro Domínguez Rojas

Pedro Domínguez Rojas

Publicist and audiovisual producer in love with social networks. I spend more time thinking about which videogames I will play than playing them.

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