Why U.S. startups become disaster zone of SVB collapse?
Silicon Valley Bank logo is seen through broken glass in this illustration, March 10, 2023. /Reuters
Silicon Valley Bank logo is seen through broken glass in this illustration, March 10, 2023. /Reuters

Silicon Valley Bank logo is seen through broken glass in this illustration, March 10, 2023. /Reuters

Bruised U.S. bank stocks regained some ground on Tuesday as a sell-off sparked by Silicon Valley Bank (SVB)'s collapse gave way to bargain-hunting by investors in hopes that efforts to shore up confidence would avert a wider financial crisis.

The U.S. Justice Department is probing the sudden demise of the bank, which was shuttered on Friday following a bank run, Reuters reported, citing a source who declined to be named as the inquiry is not public. The Securities and Exchange Commission has launched a parallel investigation, according to the Wall Street Journal, which first reported the probe.

The rapid demise of SVB and the fall of Signature Bank have left regulators racing to contain risks to the rest of the sector. On Tuesday, ratings agency Moody's cut its outlook on the U.S. banking system to "negative" from "stable."

SVB Financial Group and two top executives were sued this week by shareholders, who accused them of concealing how rising interest rates would leave its SVB unit susceptible to a bank run.

SVB's collapse brought a huge blow to the Silicon Valley's tech startups, which are the majority of its customers.

Rooted in tech

Founded in 1983 in Santa Clara, California, SVB quickly became the bank for the emerging startups and the people who financed it. It was ranked as the 16th biggest in the U.S. at the end of last year, with about $209 billion in assets. The bank claimed providing its banking services for almost half of the U.S. venture-backed startups as of 2021. In addition, it also partnered with a number of venture capital companies which fund the startups for its banking business.

The bank was deeply rooted in the financial infrastructure of the tech industry, especially startups, said, adding that SVB was more flexible and open to more ways to work with that other banks might not prefer, such as "helping early employees secure personal loans for a house."

The bank was flexible to lend money to the tech startups even when they did not have free cash flow or enough assets. Different from traditional banks, it was also fine working with founders who were not U.S. citizens.

SVB's concentration in tech industry contributed to its sudden collapse, according to some experts. Alexander Yokum, an analyst at CFRA Research who covers banking, said "This has proven that having 50 percent plus of your business in one industry is very dangerous."

Interest rate hike

Specifics of the tech-focused bank's abrupt collapse were a jumble, but the Fed's aggressive interest rate hikes in the last year, which had crimped financial conditions in the start-up space in which it was a notable player, seemed front and center.

As it tried to raise capital to offset fleeing deposits, the bank lost $1.8 billion on Treasury bonds whose values were torpedoed by the Fed rate hikes.

The problems at SVB underscore how a campaign by the U.S. Federal Reserve and other central banks to fight inflation by ending the era of cheap money is exposing vulnerabilities in the market.

Companies in the United States disclosed that they had around $5 billion in deposits, besides various credit facilities, with the bank. Below is a list of some U.S. companies along with their deposits with the bank:


The online gaming firm said about 5 percent of its $3 billion cash and securities balance, or about $150 million, were held with SVB, as of February 28.


The streaming devices maker said it has about $487 million, or 26 percent of its cash and cash equivalents, held in deposits with SVB.


The digital media firm said it had about $56 million in cash and cash equivalents at the end of 2022, majority of which were held at SVB.

Rocket Lab USA Inc.

The rocket maker said it had deposit accounts with SVB with an aggregate balance of about $38 million, or roughly 7.9 percent of the company's total cash and cash equivalents and marketable securities, as of December 31.


U.S. cryptocurrency firm Circle said $3.3 billion of its $40 billion of USD Coin reserves were at SVB.

(With input from agencies)

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