Financial Crisis of the Silicon Valley Banks


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Akarsh C., Staff Writer

In recent months, the Silicon Valley Bank (SVB) was one of many financial institutions around the world to run into problems. Right now Silicon Valley banks are going through a financial crisis and it affected so many people from investors to everyday people.

 Silicon Valley Bank is a financial institution that helps small tech startups and venture capitalists in California. Despite its long run of success, the bank experienced a major failure back in 2020, which left many questioning how such a “prominent and successful financial institution with such a strong reputation could fail,” according to Jaclyn Diaz, of NPR.

Some problems with SVB are with its roots, which can be traced to its aggressive lending practices. This bank was known for extending credit to startups and venture capitalists with little regard for the risks involved, this style was very successful, until COVID-19. 

“This approach led the bank to significant loan losses when the COVID-19 pandemic hit in early 2020, many of these startups and venture capitalists that SVB had lent money to were unable to make their payments due to the economic crisis that was caused by the pandemic,” according to Paul J. Davies and Elaine He, of Washington Post. 

Another contributing factor to SVB’s failure was its reliance on the technology sector. When the COVID-19,  pandemic swept through the United States, the technology sector was hit very hard, with many startups and venture capitalists struggling to survive. 

“This had a cascading effect on SVB, as the bank had a significant portfolio of loans and investments tied to the technology sector,” according to Vivian Giang and Mike Dang, of the New York Times. Thus, the bank’s revenue streams began to dry up, leading to financial distress.

The management of SVB contributed to the bank’s demise as well. SVB’s management team had made dubious choices in the months before the pandemic, “including extending the bank’s activities into riskier regions without carrying out adequate due diligence,” according to Joshua Franklin, Stephen Gandel and Colby Smith, of the Financial Times.

One such was the cryptocurrency investment, which was essentially the final nail. The management team of the bank was also hesitant to react to the pandemic’s economic effects and failed to move quickly to reduce the financial damage.

 In response to its financial distress, SVB was forced to take several measures to shore up its balance sheet.

“While these measures helped stabilize the bank in the short term, they also led to a significant loss of credibility with investors and clients,” according to Johnathan Weil and Ben Eisen, of the Wall Street Journal.🔳