Following the attempt of investors and depositors to withdraw $42 billion in one day on Thursday, Silicon Valley Bank collapsed miserably on Friday.
Digital businesses hoping the bank would rapidly purchase this weekend have been concerned about what might happen in the coming week because they have frozen uninsured funds and must soon pay their employees.
There have been doubts among the people about the growth of the bank. People ask how this bank run became so big within a short time. According to reports, these bank runs can be traced back to a tweet and email newsletter. And some claim that the bank run was started by Peter Thiel, a tech tycoon.
Following Silicon Bank’s failure, a technology writer named Evan Amstrong cited an email newsletter sent on February 23 by Byrne Hobart. Armstrong posted, explaining how Hobart might have knocked over the first domino to start this entire mess.
Armstrong stated that nearly every venture capitalist he knows has read the newsletter and suggested that when VC executives grew suspicious of Silicon Valley Bank, their concerns might spread like a virus.
The Diff, a well-liked daily email written by Byrne Hobart, examines the most recent advancements in business and technology. It was speculated that his post from February 23 may have alarmed investors in Silicon Valley.
Hobart stated in his post from February that Silicon Valley Bank was technically insolvent in the fourth quarter of 2017 and had a debt-to-asset ratio of 185:1.
Byrne Hobart began his essay by stating that the tech world is more risk-averse than it used to be. He stated this before describing Silicon Valley Bank as a bank that still has 185:1 leveraged on an asset base that includes loans backed by premium wine in an amount nearly equal to the equity marked to market in the last quarter.
The bank had a Premium Wine division with offices in Napa and was well-recognized for lending to the wine industry. In its fourth-quarter disclosure from the previous year, it stated that 1.6% of its $74.3 billion loan portfolio went to clients with high-end wineries and vineyards.
Armstrong stated that there were warnings of Silicon Valley Bank’s potential collapse the previous year. But before things went out of control, all that was needed was for a few venture investors to step in.
In the newsletter, Hobart predicted that in the case of a bank failure, precautions would be put in place to make sure that access to money for depositors would not be delayed. Quite apart from the bank’s huge liabilities, Hobart asserted on his blog that a collapse was unlikely.
According to Hobart, the chance of a bank run was supposedly low because it would take a titanic bank to run to have an impact on the company’s liquidity.
Hobart predicted that precautions would be put in place so that clients with money in the bank would not be impacted, even if the bank were to fail. However, he continued saying that there are good political grounds to believe depositors wouldn’t be harmed even if the corporation were to run into problems.
Amstrong claimed that the chance of SVB bank run mentioned in the newsletter might have caused the bank’s collapse this month. According to him, the collapse might have happened in a few steps as he explained in his tweet.
The tweet states that Byrne Hobart posted the newsletter concerning the SVBs collapse, and most of the VCs had read the tweet. Thus, they paid more attention to the earnings of SVB and noticed a fall in its earnings.
Thus the authorities of the bank informed everyone to pull out the funds and it led to a bank run and then to the collapse of SVB.
The bank run that led to SVB’s collapse was allegedly started by tech tycoon and Republican political donor Peter Thiel.
After SVB’s collapse, journalists and critics have shifted their attention to Thiel, accusing him of pressuring companies to stop funding the bank. It is believed that his actions were the first to ignite the bank run, which prompted California regulators to step in.
Customers of Silicon Valley Bank started gathering outside one of the franchises more than four hours before the branch opened after hearing about the altercation to ensure they could withdraw their money. Federal regulators had previously said that they were taking immediate action to guarantee that clients could access their money.
Around 100 venture capital and investment firms signed a statement in favor of Silicon Valley Bank this past weekend. According to the statements, if the bank were acquired by another party, the connection of the investors with it would remain intact.
The declaration, which was coordinated by Venture firm General Catalyst, was signed by industry giants Sequoia Capital, Kleiner Perkins, and others. President Joe Biden stated in a speech on Monday that all damages would be covered by fees banks pay to the federal government rather than by tax dollars.
Silicon Valley Bank was established in the 1980s and it immediately gained a reputation in early-stage computer startups. The bank’s services were in high demand as the industry expanded during the pandemic. Its deposits increased as companies used it to keep cash for increasing payrolls and other purposes during the pandemic.
The SVB’s downfall started soon when they made substantial bets on US government bonds that were backed by mortgages and offered poor interest rates. Last week, SVB collapsed and went bankrupt.