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Silicon Valley Bank collapse raises anxiety

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By Timothy Akintola

Downturn of global technology stocks & increased interest rate affected SVB.

Silicon Valley Bank, a state-chartered commercial bank and well known in the tech community recently experienced a global collapse on March 10, after the United State’s Federal Reserves decided to increase the interest rate. This decision majorly dispelled numerous investors from the financial institution which had built a strong relationship with global technology startups and venture capital. In fact, reports indicates that the Silicon Valley Bank collapse has now been regarded as the biggest bank failure in the United States of America since 2008.

The incessant downturn in the global technology stocks over the last year and the insistent plan of the Federal Reserves to raise the interest rate in a bid to curb inflation significantly affected the operations of Silicon Valley Bank. Like every typical banks, SVB reportedly bought bonds worth billions of US Dollars over the years with its customers’ deposits. Whilst these investments were definitely safe, the value reduced significantly as a result of the low interest rate that they paid. Also, this is mostly not a big problem for banks as they get to hold on to these bonds for a long period except the need to sell on emergencies arise.

SVB had to sell its assets to meet the withdrawal demands of customers.

Need for cash among SVB’s customers, which were mostly startups and tech-oriented firms, continued to grow significantly over the last year and as venture capital funding started to dwindle, it become immensely cumbersome for firms to acquire more rounds of funding for unprofitable ventures and thus, had to tap into their existing funds which were deposited at the Silicon Valley Bank and as customers commenced withdrawing their money, the bank had to sell its assets so as to meet the demands of the customers.

With SVB being a bank used by wealthy and business entities, the institution was wary of any bank failure due to their deposit being over $250,000. As a result of this situation, SVB had to sell its bonds. The bank made efforts toward more capital but they failed massively. However, whilst many experts expect that this situation does not exceed beyond the broad banking sector, there have been predictions of instability such as the dip in the crypto market. Experts have also noted that the United States’ tech industry might experience a ripple effect, if the money deposited at SVB is being delayed.

The anxiety of Nigerian tech startups have further aggravated.

This situation has however not affected the US tech firms alone. The anxiety of Nigerian tech startups has further aggravated, with the United States Treasury Secretary, Janet Yellen, noting that the government has no intention to bail out the bank. With HSBC, one of the US’ biggest financial institution acquiring SVB UK, tech firms in Nigeria, which have proved to be the biggest of Africa’s tech startups industry, are being immensely distressed by this situation.

Whilst reports have indicated that the impact on Nigeria’s project capital initiative would be less significant, its impact on the local startup sector is still unclear. With over 140 fintech startups according to the 2021 data, reports suggest that fintech startups in Nigeria registered about $507 million in funding value between January and August 2022. Adedeji Olowe, the CEO of Lendsqr, a fintech firm, whilst speaking on the situation, explained that some startups might have their funds trapped in the bank but in reality, their funds would not disappear.

The crisis not the same as the finance crisis that hit America in 2008.

Yellen, in an interview with CBS, also detailed the next steps of the government, laying immense emphasis on the fact that this situation was not the same as the financial crisis that hit the country 15 years ago (USA). According to her, the government was only concerned about the depositors and was working on meeting their needs. She further assured everyone that the collapse of Silicon Valley Bank would cause no domino effect, stating that the banking system in America was safe and efficiently capitalized.

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