The coming week should show whether Friday's collapse of the 16th largest bank in the US, Silicon Valley Bank, is an isolated incident or whether it may be a harbinger of a wider problem, potentially even a banking crisis with international spillovers. A number of indications speak for the first, more optimistic of the scenarios. Indeed, Silicon Valley Bank really represents a rather specific bank, which focused on young technology companies. These are generally highly sensitive to rising interest rates in the economy. It was thus more vulnerable than other banks in the face of a high-inflationary environment, which the American central bank has been trying to dispel for about a year by rapidly raising its interest rates. Part of the young technology companies, the bank's clients, cannot now access their deposits. Another specific feature of Silicon Valley Bank is the unusual high proportion of uninsured deposits. This is a consequence of the fact that a relatively high proportion of the bank's clients has balances exceeding the statutory deposit insurance limit.
It is possible that one of the 4 major American banks will save Silicon Valley Bank, given the strategies of recent years aimed at consolidating the power of the largest banks.
But the troubles are not limited to young tech companies in the USA. The British division of Silicon Valley Financial Group, under whose wings Silicon Valley Bank falls, is now on the verge of insolvency. It is no longer opening accounts for new clients and it is only a matter of time before it stops functioning properly. The heads of approximately 180 British technology companies therefore wrote to the Chancellor of the Exchequer Jeremy Hunt yesterday to intervene in the situation. If they lose their deposits, the industry of British technology companies will go back twenty years, they warn. It is said that many companies would go bankrupt overnight. However, this may only be the beginning. Silicon Valley Bank had branches in China, Germany, Denmark, India, Israel and Sweden. Tomorrow could be the start of a real crisis if the British government does not intervene, according to the heads of technology firms on the islands.
Many companies have been "stuck" in the failure of Silicon Valley Bank. One of these is BlockFi, with $247 million deposited in the bank. Roku instead, with $487 million deposited. Other companies involved are Roblox, Rocket Lab, Cohu, Sangamo Therapeutics, DNA Ginko, Ambarella, Quotient, Juniper Network and Circle (USDC).
