Yesterday, the U.S. stock market experienced an unexpected blow!

Silicon Valley Bank (SVB), a powerful and historically well-run bank, saw its stock price plummet by more than 60% on Thursday, with its market value evaporating by $9.4 billion in one day!

Just when everyone was in shock, today there was even more explosive news: Silicon Valley Bank was closed by California regulators! Silicon Valley Bank was taken over by the FDIC (Federal Deposit Insurance Corporation) !

With this news, Silicon Valley Bank officially became the first (FDIC) insured banking institution to go bankrupt in the United States in 2023 .

Prior to this, several top venture capital firms, including Coatue and Founders Fund, had advised some portfolio companies that they would strongly consider withdrawing funds from Silicon Valley Bank as concerns about its stability grew.

Here are the three driving events before Silicon Valley Bank collapsed:

1 Founders Fund, a venture capital fund co-founded by "Silicon Valley Godfather" Peter Thiel, recommended that companies withdraw their investments from Silicon Valley Bank due to concerns about its financial stability.

2 Y Combinator President and CEO Garry Tan warned its portfolio startups that Silicon Valley Bank’s solvency risk is real and suggested they should consider limiting their exposure to the lender to no more than $250,000.

3 Tribe Capital is advising many of its portfolio companies to withdraw some of their funds if they can’t fully withdraw cash from Silicon Valley Bank.

Currently, White House economic advisers are worried about whether the crisis at Silicon Valley Bank will spread into a more systemic crisis .

Now regulators in the UK and Germany are also very nervous. After the liquidity crisis of Silicon Valley Bank broke out, they have been keeping a close eye on the local banking systems.

Banking crisis coming?

Silicon Valley Bank, the 16th largest bank in the United States, is also a major lender to startups.

As a result, many of the bank's depositors are technology companies, and it does not rely on household savings accounts like ordinary banks.

The closure of Silicon Valley Bank caused stock market investors to sell off other bank stocks as well.

According to Bloomberg, U.S. regulators were observed arriving at the bank’s offices in California on Friday.

Treasury Secretary Janet Yellen said on Capitol Hill on Friday that the agency is understanding recent developments and monitoring the situation, and that it is a "concerning issue" when banks suffer losses.

Shares of several other prominent West Coast banks also fell sharply on Friday.

First Republic Bank, a San Francisco-based lender that counts prominent Silicon Valley executives such as Zuckerberg among its clients, saw its shares fall 17%.

Shares of Los Angeles-based PacWest Bancorp and Phoenix-based Western Alliance Bancorporation both fell 23%.

"Banks are still at the heart of the economy, and if there's trouble in the economy, the banks are going to feel it," said Mike Mayo, bank analyst at Wells Fargo Securities.

One-acre-three-point-land user discussion

Everyone in the technology circle knows that many startups use SVB as their bank.

Many founders open their first US account with SVB (because it is very startup-friendly and cannot be opened with traditional banks). Many startups’ banking relationships are with SVB, and SVB also has its own venture debt fund.

I have worked in two startups before, and my finance friends all said that the company's money was mainly deposited in Silicon Valley Bank. One of my former employers was led by Sequoia Capital. I have a very good impression of Silicon Valley Bank. I think it is a local bank in the Bay Area that understands startups.

As the most important bank in Silicon Valley, SVB has a strong business model.

I did some research before and found that Silicon Valley Bank has a strong positive cycle:
1. Raise funds from venture capital companies in Silicon Valley (such as PE, university education, family office funds), deposit the funds in SVB, and then find start-ups to invest.

2. After the startup receives investment from venture capital firms, it deposits the money into SVB and then develops (some may need to burn money).

3. Some startups successfully exit through listing or acquisition, and the original venture capital company’s equity is liquidated, and the profits are deposited back into SVB.

Later, I heard from senior entrepreneurs that SVB often organizes activities for entrepreneurs, such as offline exchanges with investors, etc. After all, these people are SVB's depositors/customers...

SVB had previously purchased a large amount of U.S. Treasury bonds and MBS. In comparison, the growth of SVB's cash and cash equivalents (including reserves, repurchases, and short-term debt) on hand was not obvious. With the Federal Reserve's rapid interest rate hikes in 2022 and a series of "headwinds", it faced insolvency and a liquidity crisis.

Unexpectedly, due to the Fed's interest rate hike, the price of bonds that SVB bought before fell. In addition, the depositors' new deposits decreased, and the bonds were cashed out, resulting in losses. Head institutions including Y Combinator, Founder's Fund, Coatue, etc. have all suggested that their startups transfer assets. Think about it, these SVB depositors are VCs or entrepreneurs. I feel that if I don't transfer the funds out in time today, I will be irresponsible to my company.

Therefore, the bank run of these depositors may be more severe than that of ordinary retail investors. I hope SVB can still repay in full, otherwise it may affect the run-way of startups in the Bay Area. It may also affect other smaller banks with less credibility than SVB and cause bank runs.

What Wall Street is worried about is that Silicon Valley Bank may become the first domino to cause a crisis, just like Lehman Brothers did.

Of course, some users think that this is not on the same level as Lehman:

It’s only the 16th largest regional bank, and the amount it sold was only a few billion US dollars. How could it be Lehman?

There was more than just Lehman back then, there were Merrill Lynch and Bear Stearns, and Lehman was the third, but by the time it came to Lehman, the US government felt it was powerless and unnecessary to rescue it, so there was the Lehman moment. But in fact, Bear Stearns had already collapsed before Lehman.

Look at a bank that is unknown to anyone outside the VC and venture capital circles, selling off double-digit billion worth of assets. Compared with the collapse of Bear Stearns, Merrill Lynch, and Lehman Brothers, which one is more frightening? They are not even on the same scale.

Another user predicted that there may be several more waves of mines in the future:

A lot of US listed companies raised a lot of debt at the peak of their stock prices in 2021, including realreal, opendoor, redfin, vroom, etc. Some of them are not even able to repay their debts at the current market value... I have a feeling that there are still many waves of thunder waiting for everyone.

Impact on Chinese investors

According to The Information, the anxiety caused by the closure of Silicon Valley Bank spread to China overnight.

In China, the world’s second-largest venture capital market after Silicon Valley, SVB was one of the first financial institutions to work with Chinese companies when traditional banks shunned Chinese startups.

The bank established its first Chinese branch two decades ago, and in 2012, SVB formed a joint venture bank with Shanghai Pudong Development Bank.

Chinese startups cannot raise funds from overseas investors in foreign currencies without offshore bank accounts. Opening an SVB account has been one of the easiest ways for young Chinese startups to work with overseas investors.

Many Chinese venture capitalists and entrepreneurs are now having to look for alternative banks.

"Silicon Valley Bank played a crucial role for us when we opened our first bank account at a time when companies like Citi were reluctant to work with us," said Guanchun Wang, founder of software startup Laiye.

“The closure of Silicon Valley Bank could make it more difficult for Chinese startups to raise money from U.S. investors, at least in the short term.”

With the collapse and closure of SVB, it seems more difficult for Chinese startups to find cooperative banks and investors in the United States in the future...