Why Did Silicon Valley Bank Collapse?

Image Source: cnn.com

The US Federal Reserve’s decision to raise interest rates and dampen investors’ appetite for risk led to Silicon Valley Bank’s closure.

Since last year, the Federal Reserve has been increasing interest rates

Silicon Valley Bank’s main customers, technology startups, suffered as a result of their investors becoming less risk-tolerant.

Silicon Valley Bank liquidated a $21 billion bond portfolio, primarily made up of US Treasury bonds, to pay for the redemptions.

SVB was compelled to record a $1.8 billion deficit as a result, which it had to make up for by raising capital.

SVB clients withdrew their funds from the bank at the suggestion of venture capital companies like Peter Thiel’s Founders Fund.

SVB rushed to find alternate sources of financing, including by selling a company.

FDIC would try to sell SVB’s assets and future dividend payouts to uninsured depositors might be made.

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