Silicon Valley Bank’s sudden collapse causes fear over 'Black Monday'

Silicon Valley Bank (SVB), the primary bank of U.S.-based tech companies, collapsed 48 hours after a bank run. The bank with 277 trillion won in assets failed suddenly while trying to respond to a sharp decline in the value of government bonds due to a rapid interest rate rise. Global start-up companies are calling for governments’ emergency support in fear of bankruptcy.

The Department of Financial Protection and Innovation in California shut down SVB on Friday morning (local time) and named the Federal Deposit Insurance Corporation (FDIC) as the receiver. SVB, founded in 1983, has dealt with venture capital and start-ups on the West Coast for 40 years. The bank handles deposits of tech companies, provides loans to start-ups in the early stages, and has been providing funds for the tech industry, not only in the U.S. but also in the U.K., India, and China.

However, the price of government bonds owned by SVB dropped sharply after the Federal Reserve System raised the interest, and the bank had a bigger interest burden for its deposits. As a result, the bank announced large-scale financing, which stirred up fear in the market. As the SVB Financial Group announced a plan to raise 2.25 billion dollars in fresh capital by selling new shares on Wednesday afternoon, a bank run began. U.S. tech companies that were struggling with tight capital due to high-interest rates made withdrawals.

About 42 billion dollars were withdrawn on Thursday alone, and SVB’s stock price fell by over 60 percent. Within just 48 hours, the bank was closed. It’s considered the second biggest bank failure in the U.S. since the collapse of Washington Mutual in 2008.

Companies in Silicon Valley are fearing a series of bankruptcies starting on Monday. Some are even worrying about ‘Monday the 13th,’ which is an expression‎ based on a conventional belief that ‘Friday the 13th' is an ominous day. Venture investor David Sacks said on his Twitter account that the risk would expand unless an announcement is made before Monday that all deposits are safe.


Hyoun-Soo Kim kimhs@donga.com · Min-Woo Park minwoo@donga.com