What kind of bank is 'Silicon Valley Bank' and why did it fail?


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On March 10, 2023 (Friday), the US-based Silicon Valley Bank went bankrupt. However, there should be many people who say, 'It's a serious news, but I've never heard of Silicon Valley Bank.' So, I summarized the outline of Silicon Valley Bank and the circumstances leading to bankruptcy.

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◆What kind of bank is Silicon Valley Bank?
Silicon Valley Bank is a bank based in Santa Clara, California, United States. This Santa Clara is located in the center of the economic zone 'Silicon Valley' where the headquarters of super-famous technology companies such as Apple and Google are gathered, and the Silicon Valley Bank based in Santa Clara has many technology companies. I had a customer. In addition, Silicon Valley Bank is actively investing in startups, and many people who want to start a company in Silicon Valley were doing business with the bank.

According to a blog post by Kosuke Kawaguchi, who experienced dealings with Silicon Valley Bank, in Silicon Valley, the process of 'institutional investors investing funds and creating new companies' is a constant process like a factory work lane. It is said that it is done according to the format. The `` contract with Silicon Valley Bank '' was incorporated in this `` work lane '', creating the situation that `` most Silicon Valley startups are doing business with Silicon Valley Bank ''.

Why SVB has a near monopoly on tech startups.

Silicon Valley has a mechanism for manufacturing startups like a factory. New companies are usually created when legitimate institutional investors put in money. Institutional investors are connected to local law firms and SVB, so the necessary documents are created on their assembly line. For those in the middle of the whirlpool, it feels like going to a medical checkup or renewing a driver's license. yes, do this. Then over there. Sign here. Talk to this person next. I am the only one who has experienced it for the first time. It makes me feel like a kindergartener who got lost between college students.

There must be some kind of contract between the investor and SVB, and there must be a promise to bring the company he builds to SVB. All the founders around me are SVBs, and there is no reason for me to leave the conveyor belt, so I do as I am told. It also has a robust financing program for startups. In this way, SVB's monopoly on tech startups becomes solid. Corporate bank accounts charge a lot of fees, so it should be a fairly reasonable profit.

This time, however, the tech industry's economic slowdown has turned the monopoly into an enemy.

◆ Flow to bankruptcy
As mentioned above, Silicon Valley Bank has created a monopoly situation in the Silicon Valley area, and management seemed to be rock solid. However, in the financial results for the first quarter of 2023 announced by Silicon Valley Bank on March 8, 2023 (Wednesday), the bank's CEO Greg Becker said, ``Sell substantially all securities'' and `` Announcing (PDF file) that we will raise funds of 2.25 billion dollars (about 300 billion yen). At the same time, it announced that it had signed a contract to receive a $ 500 million (67.2 billion yen) funding contract from the investment fund 'General Atlantic'.

After the above announcement, distrust spread among investors that 'Silicon Valley Bank's management may be in danger', and the movement to sell the bank's shares expanded. As a result, the stock price of Silicon Valley Bank

plunged more than 60%. In addition, many customers began to withdraw their deposits, and the bank ran out of funds, leading to bankruptcy on March 10, 2023 (Friday).

According to Kosuke Kawaguchi's blog post mentioned above, he received a message from an investor at 14:00 on Thursday, March 9, 2023, saying, ``Since the management of Silicon Valley Bank is in danger, it is better to transfer funds.'' . Furthermore, at 17:00 on the same day, it seems that another investor sent a tense e-mail saying that he was watching the situation of Silicon Valley Bank.

The first report came at 2:00 pm on Thursday. I got a short email from one of our top investors saying that SVB seemed like a bad idea and that six months' worth of working capital should be moved elsewhere. Looking at the news, after the stock market closed, SVB was sold off and it was a big deal. Fortunately, we switched to another bank about half a year ago, so there is no particular impact. I returned the email as such. Besides, I wasn't too worried about it at the time. Even if the SVB had all the cash, it would have been impossible to move the money because the time limit for the transfer processing had already passed. Shortly after five o'clock, another investor sent a mass email to affiliated companies stating that they were closely monitoring the situation at SVB.

◆Why did the company go bankrupt?
According to Jamie Quint , who leads the growth and monetization department of the giant online bulletin board 'Reddit', the deposit amount of Silicon Valley Bank was $ 61.76 billion (about 8.3 trillion yen) at the end of 2019. , It jumped to 189.2 billion dollars (25.5 trillion yen), more than tripled in 2021. Silicon Valley Bank, which got a lot of funds, bought more than $ 80 billion (more than 10 trillion yen) of mortgage-backed securities (MBS) .

The average yield of MBS purchased by Silicon Valley Bank was 1.56%, and it was expected that funds would continue to increase if prices remained steady. However, as the Federal Reserve Board (FRB) raised interest rates in 2022, investors' attention shifted to bonds, and the value of MBS plummeted. It has been pointed out that this crash of MBS may have had a major impact on the deterioration of the financial situation of Silicon Valley Bank.

in Note, Posted by log1o_hf