Silicon Valley bank collapsed in 48 hours – 03/12/2023 – Ronaldo Lemos

The past week can be described as catastrophic for the financial side of technology projects. Silicon Valley Bank (SVB), which has been in existence for 40 years and is mainly used by venture capitalists and start-up companies, went bankrupt during a crisis that lasted just over 48 hours.

It is also worth noting that Banco do Vale do Silicon is heavily used by Brazilian companies and investment funds originating in Brazil. This beginning of the week will be decisive. Starting this Monday (13th), it will be the day when many investors, shareholders, company directors and employees will be informed of the real size and potential damage caused by the collapse of that financial institution.

There are rumors that many start-up companies will not be able to honor the payment of their employees, precisely because they have a large part of their resources deposited in the bank that collapsed. More than that, there are stable cryptocurrency projects backed by the dollar (stablecoins) whose ballast, in the order of US$ 3 billion, was also deposited in the bank.

The fear is that there is an imminent possibility that these projects will also collapse. By way of example, a stablecoin representing $1 was selling at $0.96 on Saturday, an ominous sign.

Whenever an institution of this magnitude goes down, there is the risk of the dreaded “fallout”. The term refers to radioactive particles that are carried through the air after a nuclear accident. Days, months or even years after the accident happened, the fallout continues to generate tragic effects, often in unexpected and remote places in relation to the epicenter of the event.

In this case, SVB was the 16th largest bank in the United States, which is no small feat. The risk of fallout is even greater given the tangled web effect that characterizes the technology sector. In addition, the shortage of liquidity that plagues this market.

In this sense, due to high interest rates in dollars and the significant drop in the value of technology companies in recent months, any realization of assets at this time also means the realization of losses.

What will happen now? The SVB was an institution regulated and guaranteed by the FDIC, the federal institution that insures deposits in the USA. However, the FDIC only insures $250,000 of each deposit. In the case of SVB, more than 90% of deposits exceeded this value. In other words, it is entirely uncertain at what percentage and when amounts not insured by the FDIC would be paid. The hope is that SVB can be bought by a larger bank, which would take over its credits and debts, restoring security to the market.

It is worth noting that in the same week another (smaller) bank also collapsed, Silvergate, linked to financial transfers in the crypto market. What draws attention in the case of SVB is the speed of the herd effect. This effect was mainly created by large venture capital funds that, when faced with the bank’s potential crisis, sent messages to all of their invested companies to get the money out of there as quickly as possible. This generated a frenzy last Thursday (9) and at 12:00 on Friday (10) the SVB succumbed.

All of this serves as a warning for the moment we are living. It’s not quiet, it’s not favorable.

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It’s over – Finding technology markets to be stable and enduring

Already – Instability and impermanence of technology markets

It’s coming – Fear of “fallout” with the collapse of the Silicon Valley Bank

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