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Frequently Asked Questions (FAQ) About Collapsed Silicon Valley Bank

By Itunu Azeez Kareem

13 March 2023   |   4:00 pm

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Recently declared as a bank that has collapsed, except for something magical. Nigerians and customers are concerned about the latest. Here are selected frequently asked questions about the bank in transition. Silicon Valley Bank was established on October 17, 1983, as a wholly-owned subsidiary of Silicon Valley Bancshares (now SVB Financial Group) with 100 initial…

Logo on building exterior at the Silicon Valley[-]<br />headquarters of pharmaceutical company Roche, Santa Clara, California, August 17, 2017. (Photo: Smith Collection/Gado/Getty Images

Recently declared as a bank that has collapsed, except for something magical. Nigerians and customers are concerned about the latest. Here are selected frequently asked questions about the bank in transition.
Silicon Valley Bank was established on October 17, 1983, as a wholly-owned subsidiary of Silicon Valley Bancshares (now SVB Financial Group) with 100 initial investors. Customers across the world are now in panic as to what to do next and why the collapse at such a time the world is nearing another global recession. Here are the major things you need to know about SVB

Are they Cash strapped?
YES they are…The Silicon Valley bank requested another cash inflow, to the tune of around $1.8 billion which caused the collapse of its two subsidiaries in the USA and the UK.
As the preferred bank for the tech sector, SVB’s services were in hot demand throughout the pandemic years.
Many tech companies used SVB to hold the cash they used for payroll and other business expenses, leading to an influx of deposits. The bank invested a large portion of the deposits, as banks do.

The seeds of its demise were sown when it invested heavily in long-dated US government bonds, including those backed by mortgages. These were, for all intents and purposes, as safe as houses.

Did silicon valley-bank have its redemption?
Well, if they received a bailout, the point of this story would be gone. The government is not rescuing the SVB; it remains bankrupt — or in liquidation, with remaining assets scattered among creditors — unless a buyer can bring it back to life.

Late Sunday, however, US authorities extended the guarantee to all deposits at the bank, as well as customers at Signature Bank, another smaller institution that collapsed over the weekend. This means that SVB customers can access all their money on Monday morning. The bank’s shareholders and some unsecured creditors are not protected by guarantees.

How does it concern Nigeria businesses?
· Job losses
· Increase in debt in the techy industries
· The IT companies in Nigeria run a risk of winding up also.
· Start-ups will be limited and indirectly there’s limited funds capital in circulation.
· Nigeria may begin to lose its grip in Africa as the biggest economy, to counterparts like south Africa, Rwanda and others

Will this affect interest rates?
Central banks around the world have been raising rates over the past year to tame high inflation, with the US moving from near zero to more than 4.5% at a rapid pace.
Most forecasters expect rates to go higher in the US, UK and Australia, before stabilising.
The appetite to keep raising rates will now be tested if central banks become concerned that SVB’s problems are indicative of a broader weakness in corporate balance sheets caused by rising rates.