Silicon Valley Bank(SVB), considered one of the most powerful banks, is on the verge of being declared bankrupt. News of the Silicon Valley Bank collapse may impact a large number of global startups, including Indian-based. The reason is that it plays an important role in lending money to tech-based businesses.
This central bank has provided access to much-needed capital from global VC firms in the US. A large number of startups raise funds and deposit money in the SVB. There is also speculation that the central bank may stop raising interest rates, which can be early signs of a financial crisis. As a result, the borrowing cost in the coming year is expected to surge, which is not a good sign for Indian-based startups in the US. Before that, Silicon Valley Bank suffered from the global financial crisis in 2008, which proved to be the biggest banking failure in history.
Last Friday, California Regulators ordered the biggest startup lender to shut down that defrauded its investors and depositors. The main reason behind the collapse of the Silicon Valley Bank was the investment decision of most of its assets in US bonds. To reduce the inflation rate, the Federal Reserve Bank manipulated the interest rate last year, which resulted in the lowest bond price ever.
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Moreover, the startup funding was also reduced amid COVID-19, which made depositors withdraw money in large amounts. Before the day of the financial crisis, Greg Becker, President and CEO of SVB, assured depositors and investors that their money was safe with the bank. SVB confirmed that it was forced to sell all its bonds at a loss of $1.8 Billion. Undoubtedly, the SVB collapse raises new financial crisis concerns for startups and entrepreneurs.