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Silicon Valley Bank collapse: What happened and what stocks are affected?

By Peter Henn

Edited by Jekaterina Drozdovica

16:19, 13 March 2023

icon valley Bank (SVB) logo with Federal Deposit Insurance Corporation (FDIC) logo background
Silicon Valley Bank collapsed. Photo: Poetra.RH / Shutterstock

The news about the collapse of Silicon Valley Bank  (SIVB), which had been the 16th largest bank in the US, has sent shock waves throughout the world’s economy. What does it mean for financial markets?

In this article, we take a look at the latest Silicon Valley Bank news, and try to explain what the institution did, why it collapsed, and what are the companies affected.

What is Silicon Valley Bank (SBV)?

Silicon Valley Bank was set up in 1983 by former Bank of America (BAC) managers Bill Biggerstaff and Robert Medearis and was based in San Jose, California. 

The company was designed, as its name suggested, to serve the needs of tech companies at a time when the market for computers was still, if not in its infancy, then in a fairly early part of its overall development. 

The organisation grew and grew, opening offices across the US. During the 1990s, it moved its headquarters to the Californian city of Santa Clara, and was able to profit from the dot-com bubble, as it became noted for its willingness to lend money to start-up companies that were not yet turning a profit. 

Although the bubble burst, sending the Silicon Valley Bank stock price dropping by around half, by 2002, under the leadership of CEO Ken Wilcox, it entered the private banking sphere and two years later it opened offices in the UK, India, Israel and China. 

Silicon valley bank (sbiv) stock price 2018-2023

By 2015, the bank said that it funded around 65% of all tech start-ups in the US and, despite the arrest and subsequent jailing of former vice president Mounir Gad on insider trading charges, the company looked like it was maintaining its position as the main place for new businesses in the tech sector to do their banking.

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Silicon Valley Bank collapse explained

Things started to go wrong in 2022. While the previous few years had been pretty good for the tech industry as people relied more on online companies during Covid-19 lockdowns, the companies who had been banking with SVB had seen their deposits invested in bonds

Normally this would be seen as a pretty safe and reliable investment, but interest rates rose in 2022 to combat the worldwide cost of living crisis. This meant that the overall value of the bonds went down. 

In turn, this caused some businesses to worry about the overall security of their deposits with SVB, which led to them withdrawing their money. As a result of this, SVB had to try and sell its bonds so it would have enough money to satisfy the needs of the companies and people who had invested in it, which was announced on 8 March 2022. 

This news, in turn, caused more organisations to try to withdraw their funds. Just two days after the bank, which had been worth $200bn, announced it would be trying to sell its bonds, SVB collapsed. Banking regulators in California closed the bank and appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver. In a statement, the FDIC said: 

“All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”

Following the news, the SVBI share price crashed by 60.41% on 10 March, before the trading halt was announced on the NASDAQ stock exchange as investors await further developments. 

Stocks affected by the SBV collapse

The collapse of SVB has had an impact on a variety of companies including the wider banking sector and SBV clients. 

Companies that banked with SBV 

The stocks affected included streaming firm Roku (ROKU), which saw its stock price drop 3% over the weekend amid claims that SVB held more than a quarter of the company’s assets, arts e-commerce site Etsy (ETSY), whose price fell by more than 6% across 13 March after its merchants were told there may be a delay in accessing their deposits.

Roku (ROKU) live stock price

The AI semiconductor business Ambarella (AMBA), saw its share price fall by around 6% from 10 to 13 March as it had a reported $17m worth of deposits in SVB. 

NVDA

120.56 Price
+2.130% 1D Chg, %
Long position overnight fee -0.0263%
Short position overnight fee 0.0041%
Overnight fee time 21:00 (UTC)
Spread 0.12

COIN

261.34 Price
+1.860% 1D Chg, %
Long position overnight fee -0.0263%
Short position overnight fee 0.0041%
Overnight fee time 21:00 (UTC)
Spread 0.63

GME

24.93 Price
-0.440% 1D Chg, %
Long position overnight fee -0.0263%
Short position overnight fee 0.0041%
Overnight fee time 21:00 (UTC)
Spread 0.18

TSLA

244.35 Price
+2.110% 1D Chg, %
Long position overnight fee -0.0263%
Short position overnight fee 0.0041%
Overnight fee time 21:00 (UTC)
Spread 0.15

The collapse of SVB has had an impact on a variety of companies which banked with it. For instance, Lindsay Michaelides, the CEO of Strongsuit, a company designed to support working parents, tweeted that her business’s financial future was at risk following what happened to SVB.

Garry Tan of Y Combinator said that the collapse could represent an “extinction level event” for newer and smaller tech companies. 

Banking sector 

The banking sector was also hit following the news about SVB. A number of regional bank stocks were down over the wake of the collapse, with Western Alliance Bancorp’s stock price dropping more than 85% from an intraday high of $55.96 on 10 March to an intraday low of $7.56 on 13 March. At the time of writing, the stock is trading 48% down on the day.

Meanwhile, First Republic Bank (FRC), dropped from an intraday high of $95.44 on 10 March to an intraday low of $17.55 on 13 March, an over 80% slump. 

Bigger banks were also hit, yet on a smaller scale, with Wells Fargo (WFC) and Bank of America (BAC) seeing 4% and 2% falls in their share prices respectively on 13 March.

Bank of America (BAC) live stock price

The matter was not restricted to American markets, either, as the FTSE 100 (UK100) was down, with banking giants Standard Chartered (STAN), which dropped over 6% on 13 March, and Barclays (BARC), which fell over 5%. Meanwhile, investors appeared to be looking to move their money into so-called safe haven assets, with the price of gold rising 2.2% following SVB’s collapse.  

Gold live price

Impact on financial sector 

Rupert Thompson, the Chief Economist at Kingswood, said that, while the collapse of SVB was the largest bank collapse since the global financial crisis of 2008, things were somewhat different. He explained: “Silicon Valley Bank was very much focused on tech start-ups and ran into problems as the rise in interest rates had led to deposit withdrawals and was forcing it to sell its government bond holdings at a loss.” 

“The problems SVB faced are not applicable to the large banks which do not face a run on their deposits and generally benefit, rather than suffer, from higher interest rates. If there were a deep recession, they would face a tough time but there is no sign of this at the moment and crucially they are much better capitalised than back in the financial crisis.”

It is possible that interest rates, which have risen significantly in the US, could be calmed down if there are fears that other, larger, banks could suffer the same fate as SVB for similar reasons. 

Likewise, traders could see the overall stock prices of both banks and tech companies slow in growth or even fall, at least in the short-term. There may also be implications for the US dollar, with the US Dollar Index (DXY) dropping between 10 and 13 March.

Will there be a bailout?

The future of the company’s overseas subsidiaries is also somewhat in question at the time of writing although on 13 March 2023, its British arm was purchased by HSBC for £1

On 12 March, US Treasury Secretary Janet Yellen ruled out a government bailout, telling CBS News: 

"During the financial crisis, there were investors and owners of systemic large banks that were bailed out and the reforms that have been put in place means that we're not going to do that again.”

Nevertheless, the US Treasury, Federal Reserve (Fed) and the FDIC issued a joint statement, seeking to protect creditors of both the Silicon Valley Bank and the Signature Bank.

In a joint statement, Yellen, Federal Reserve Chair Jerome Powell and FDIC Chairman Martin Gruenberg said: 

“Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”

Note that this article does not constitute trading advice. 

 FAQs

How did Silicon Valley bank collapse?

Silicon Valley Bank collapsed as it experienced a run after announcing that it was in the process of selling bonds it held.

Why did Silicon Valley Bank collapse?

Silicon Valley Bank collapsed because it had to sell the bonds it held in order to support customers who wanted to withdraw their deposits after the news that, following a series of interest rate hikes, the bonds were not worth as much as they had been.

Is Silicon Valley Bank publicly traded?

Silicon Valley Bank’s parent company, SVB Financial Group, is publicly traded under the ticker handle SIVB. 

Who owns Silicon Valley Bank?

Silicon Valley Bank was owned by SVB Financial Group, although at the time of writing its various arms were potentially being sold off, with HSBC buying its UK arm for £1 on 13 March 2023. SVB’s American operation is now in the hands of the Federal Deposit Insurance Corporation who are acting as the receiver. 

Markets in this article

BAC
Bank of America Corp (Extended Hours)
42.52 USD
-0.22 -0.520%
ETSY
Etsy
62.83 USD
-0.87 -1.370%
ROKU
Roku Inc (Extended Hours)
65.87 USD
0.51 +0.820%
AMBA
Ambarella, Inc. - Ordinary Shar
56.83 USD
-0.58 -1.010%
BARC
Barclays
2.3120 USD
0.0265 +1.160%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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