The bankruptcy of Silicon Valley Bank has become one of the most resonant events in the financial sector, not only in the United States, but throughout the world. The fall of SVB was the biggest collapse of a US financial institution since 2008, when the Lehman Brothers bankruptcy effectively triggered a financial crisis.
Last week, the US financial regulator announced the bankruptcy and liquidation of Silicon Valley Bank, the 16th largest bank in America, known for its large client base of technology companies and venture capital funds.
What is known about SVB Bank?
Silicon Valley Bank or as it was also called "Silicon Valley Bank" was founded 40 years ago, focused on opening accounts for tech startups and venture capital funds, which made it almost a monopoly in servicing such clients. The bank was considered the largest in Silicon Valley, in part, because it cooperated with funds. And those, in turn, strongly advised start-up companies to open their accounts with SVB.
The tech sector has grown rapidly during the pandemic, helping the bank attract a large number of new customers. As a result, turnovers and balances on the accounts of the bank's clients increased.
As of the end of 2022, Silicon Valley Bank had about $209 billion in total assets and over 8,000 employees, which in general can be perceived as factors in the bank's reliability. However, even with half of America's venture technology companies in service, the bank was not immune from collapse.
Reasons for bankruptcy
As a result of raising interest rates by the US Federal Reserve to combat a significant drop in tech stocks, SVB bank suffered and, as a result, went bankrupt.
In short, the bank, as usual, used customer deposits to purchase bonds. Hoping for a long-term profit, the bank's board made a mistake in the calculations and the market value of such investments fell significantly, thereby causing losses.
Almost immediately, the technology sector began to fluctuate, forcing start-up companies, the bank's main clients, to take cash to solve their own personal difficulties. As a result, SVB began to sell personal investments and assets in order to pay off depositors.
The damage escalated and ultimately led to the fact that Silicon Valley Bank became effectively insolvent, and it was not possible to attract third-party investors.
The news that the bank was looking for a $2.25 billion investment to cover debt caused more customers to withdraw funds, and the bank's shares fell more than 60% in almost a day.
The publicity prompted depositors to withdraw all their deposits, which finally emptied the cash supply and brought it into the red.
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Will the collapse of the bank affect technology companies, in particular Ukrainian ones?
It is well known that Ukrainian technology companies, seeking to enter the American and world markets, register companies and open bank accounts for them abroad. Therefore, the answer to the question “Will the bankruptcy of SVB affect the Ukrainian market of technology companies” is in the affirmative.
Firstly, the blocking of accounts led to difficulties with the payment of salaries and settlements with counterparties of some technology startups.
Second, the US Deposit Guarantee Fund insures amounts up to $250,000. However, given that the lion's share of customers kept funds there, the amount of which exceeds this amount, they run the risk of not receiving them.
Thirdly, frozen funds and a blocked account significantly complicate the process itself and require time and money to open a new account and transfer balances there.
How can Taxters help?
Given the news of the collapse of Silicon Valley Bank and realizing that many Ukrainian technology companies could work through this financial institution, we want to offer maximum assistance from our side.
If your company had an account with this bank, we are ready to offer our assistance in the following services in an expedited manner for the prompt withdrawal of funds: fast onboarding and verification procedures in one of our partner payment systems; fast transfer of input payments to the account opened in the payment system, regardless of the amount.
We understand that efficiency in this situation is of paramount importance, because the company needs to stabilize its cash flow in a very short time.
