Silicon Valley Bank Crisis: The parent of the Silicon Valley bank seized by the US last week is filing for Chapter 11 bankruptcy protection.
SVB Financial Group, along with its CEO and its chief financial officer, was this week targeted in a class action lawsuit that claimed the company did not disclose the risks that future interest rate hikes could pose to its business. Will have an impact.
SVB Financial Group is no longer affiliated with Silicon Valley Bank after being seized by the Federal Deposit Insurance Corporation.
The bank’s successor, Silicon Valley Bridge Bank, continues to be operated under the jurisdiction of the FDIC and is not included in the Chapter 11 filing.
SVB Financial Group believes it has liquidity of around US$2.2 billion.
What were the reasons for the bankruptcy of SVM?
It should be noted here that the Silicon Valley bank was hit hard by the decline in technology stocks over the past year, along with the Federal Reserve’s aggressive plan to raise interest rates to combat inflation. The bank had bought billions of dollars worth of bonds over the years using customer deposits. This is usually what banks do.
These investments are generally safe, but as interest rates rise, the value of these investments has fallen because they were earning less interest than today’s higher interest rates. Normally this is not a problem, as banks invest for the long term. But things can change when they have to sell in an emergency. SVB’s clients were largely startups and other tech-focused companies, which have been struggling for cash for the past year.
(with inputs from AP)