There are many allegations behind the scenes of the Silicon Valley Bank (SVB) decline. @enginalemdar, who investigated this incident in detail, explains the issue in detail on twitter. We have compiled this tweet series for you.
Silicon Valley Bank (SVB) is much more than a bank. It is the 16th largest bank in the United States, working as a hub for investment transfers by VCs and startups. It is also an institution that invests in many (especially biotechnology) startups.
The story touches on many parameters, actually. But let me try to summarize it like this:
With the pandemic, the FED created money and enlarged its balance sheet. This cheap money created generally flowed into risky assets. Crypto assets and startups led these risky assets.
2021 has been a tremendous year for startup investments. Idle funds rained down on many startups. This ballooned the valuations of all qualified and unqualified startups. The vast majority of these incoming funds were also held as deposits with the SVB.
After the pandemic, the wind started to blow and the FED first stopped buying assets and then started to increase interest rates. This naturally made money valuable and escapes from risky assets increased. When cash-hungry startups couldn’t find the valuation they hoped for, the bubble burst.
The new investment rounds became more difficult and started to give higher shares to lower funds. Because they were cash dependent and had a high burn rate, they would either go bankrupt or accept the proposed valuations. I wrote this back then.
As such, startups loaded onto their deposits in SVB and other banks. There was a significant outflow of deposits from the SVB. In order to manage this situation, he sold his bonds, risking a loss of 1.8 billion USD. Thus, the cash shortage was revealed.
Then, top investors like Peter Thiel and Paul Graham told startups in their portfolios to withdraw their money from SVB. And that’s it 💣 💥 Even though the CEO said, wait, don’t panic, it happened. Everyone swarmed to withdraw their money from the SVB.
Shares of SVB fell sharply. The situation also affected other bank stocks. About 2 hours ago, the FDIC (Federal Deposit Insurance Corporation), the TMSF-like institution in our country, took action and closed the bank. The FDIC will make payments to depositors.
Now they’re going to run this thing out. There were already serious layoffs in technology companies. They also linked this SVB incident to salaries. However, the FDIC announced that all deposits will be paid in full by March 13 at the latest. I can’t smell any good smells to my nose, what should I lie…
Of course, this payment will be amounts up to 250K USD. About 90% of bank deposits are uninsured. They will take the 250K, then wait for the FDIC to sell their bank holdings. I hope it doesn’t get any deeper.
We recommend you to read Engin Alemdar’s article about balloon inflation in attempts > Girişimciler Dikkat! Balon Patlamak Üzere!