INDIAN START-UPS FEEL SVB TREMORS

2023 caused the value of these securities to plunge. A characteristic of bonds and similar securities is that when yields or interest rates go up, prices go down, and vice versa.

The bank recently said it took a US$1.8 billion hit on the sale of some of those securities and they were unable to raise capital to offset the loss as their stock began dropping. That prompted prominent venture capital firms to advise the companies they invest in to pull their business from Silicon Valley Bank. This had a snowball effect that led a growing number of SVB depositors to withdraw their money too.

The investment losses, coupled with the withdrawals, were so large that regulators had no choice but to step in to shut the bank down to protect depositors.

ARE THE DEPOSITS NOW SAFE?

From a practical perspective, the FDIC is now running the bank. It is typical for the FDIC to shut a bank down on a Friday and have the bank reopen the following Monday. In this case, the FDIC has already announced that the bank will reopen on March 13 as the Deposit Insurance National Bank of Santa Clara. At the end of 2022, SVB had $175.4 billion in deposits. It’s not clear

The collapse of a bank located faraway in the famous Silicon Valley on Friday night sent tremors across the globe, including India. Shares of the Silicon Valley Bank (SVB) crashed by about 60 percent after it incurred a huge loss on its bond holding of $21 billion dollars. The estimated loss was of around $1.8 billion. This was not unexpected as the central banks have been raising interest rates to fight inflation. In the last 12 months the US Federal Reserve has hiked the interest rates by 4.5 percentage points. The panic led to a huge fall in global stock markets with Sensex falling by 900 points.

SVB, as it’s known, was the biggest US lender to fail since the 2008 global financial crisis – and the second-biggest ever. We asked William Chittenden, associate professor of finance at Texas State University, to explain what happened and whether Americans should be worried about the safety of their financial system how much of those deposits remain with the bank and how much of those are insured and 100% safe. For depositors with $250,000 or less in cash at SVB, the FDIC said that customers will have access to all of their money when the bank reopens. For those with uninsured deposits at SVB – basically anything above the FDIC limit of $250,000 – they may or may not receive back the rest of their money.

WHAT WAS THE LAST US BANK TO FAIL?

Prior to the failure of SVB, the most recent bank failures occurred in October 2020,

Shares of the Silicon Valley Bank (SVB) crashed by about 60 percent after it incurred a huge loss on its bond holding of $21 billion dollars. The estimated loss was of around $1.8 billion

Before the rate hike process began, several US-based Indian start-ups had parked huge amounts of money in the SVB which has now been shut down by the US regulators. Some of the deposits were more than $250,000. The SVB began investing in Indi- when both Almena State Bank in Kansas and First City Bank of Florida were taken over by the FDIC. Both of these banks were relatively small – with about $200 million in deposits combined. SVB was the biggest bank to fail since September 2008, when Washington Mutual failed with $307 billion in assets. WaMu fell in the wake of investment bank Lehman Brothers’ collapse, which nearly took down the global financial system. On the whole, U.S. bank failures aren’t all that common. For example, there were none in 2021 and 2022.

IS THERE ANY RISK

THAT MORE BANKS MIGHT FAIL?

At the end of 2022, SVB was the 16th-largest bank in the United States with $209 billion in assets. That sounds like a lot – and it is – but that’s just 0.91% of all banking assets in the U.S. There is little risk that SVB’s failure will spill over to other banks. Having said that, SVB’s collapse does highlight the risk that many banks have in their investment portfolios. If interest rates continue to rise, and the Federal Reserve has indicated that they will, the value of the investment portfolios of banks across the U.S. will continue to go down.

SOURCE: THE CONVERSATION an ventures in 2003 and about 20 start-ups are exposed to the risk now posed by the collapse, much like the collapse of Lehman Bank and closure.

The SVB, however, has enough funds to pay off its insured depositors. The SVB’s custodian has been quoted as saying that the bank has $175 billion in deposits and $209 billion assets.

The collapse has come as a rude shock in the world of tech start-ups. The main concern of Indian startups is over transfer of their assets.

Pinterest board member Gokul Rajaram summed up the situation: “India-based founders don’t know who to turn to as an alternative to SVB. Likely true for founders in other countries too…”

For the peace process to sustain, the two Islamic nations will have to stop their proxy war in Yemen’s sectarian hostilities. It could then bring peace between Iran backed Houthi rebels and the Saudi-backed exiled government. Ramifications of this deal may also be felt in Syria and Lebanon.

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