Israeli startups tumble in wake of Silicon Valley Bank collapse
The SVB collapse is considered the second biggest bank collapse in US history, and particularly affects start-up companies in California and Israel
By News Desk - March 11 2023

Employees outside of the shuttered Silicon Valley Bank headquarters on Friday. (Photo Credit Justin Sullivan/Getty Images)

Silicon Valley Bank (SVB) collapsed on the morning of 10 February after a rapid series of events caused a bank run and a capital crisis. SVB’s failure is the second-largest of a financial institution in US history.

Though not well known to the broader US public, SVB is one of the oldest and largest banks active in the high-tech industry. It is considered one of the most prominent financiers of Israeli and US start-ups and has dozens of employees in Israel, meaning the bank’s failure could have major ramifications for Israel’s high-tech industry.

According to estimates, SVB finances over 100 Israeli startups.

US Regulators closed the bank Friday and put it under the control of the US Federal Deposit Insurance Corporation (FDIC), which insures bank depositors against losses of up to $250,000. The FDIC will now liquidate the bank’s assets to help pay back its customers, including depositors and creditors.

The crisis was triggered on Wednesday when SVB announced it had sold a $21 billion bond portfolio at a large loss and that it would sell $2.25 billion in new shares of the bank’s stock to raise money and shore up its balance sheet. The news triggered panic among key venture capital clients of the bank, who reportedly advised companies borrowing from the bank to withdraw their deposits.

In response, SVB shares plummeted by more than 60 percent on Thursday during the regular market trading session and lost another 20 percent in after-hours trading.

By Friday morning, the collapsing stock price had made it impossible to raise new capital by selling stock, and although the bank tried to look for other solutions, including a sale to another bank, regulators intervened and closed the bank down.

According to Reuters, the sudden failure of SVB was caused by a broader set of events triggered by the US Federal Reserve’s swift increase in interest rates over the past two years in an attempt to tame inflation. Higher interest rates made borrowing for companies more expensive, which reduced SVB’s lending and caused the market for initial public offerings of new tech start-up companies to dry up. As SVB’s profitability declined, the bank’s clients started pulling money out.

To fund the redemptions, SVB sold its $21 billion bond portfolio consisting mostly of US Treasuries purchased in recent years on Wednesday, which led to a $1.8 billion loss.

On 9 March 2020, the 10-year Treasury yield reached an all-time low of 0.54 percent as the stock market crashed with the outbreak of the Covid-19 pandemic. Currently, the 10-year Treasury yield is at 3.74 percent.

Konrad Alt, the co-founder of Klaros Group, estimated that rate increases have “effectively wiped out approximately 28 percent of all the capital in the banking industry as of the end of 2022,” raising fears that other banks may also collapse moving forward.

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