• World
  • Mar 13

Signature Bank, Silicon Valley Bank collapse in the US

• State regulators closed New York-based Signature Bank on March 12.

• Signature’s failure followed Silicon Valley Bank’s shutdown on March 10, the second largest in US history behind Washington Mutual, which collapsed during the 2008 financial crisis.

• US authorities launched emergency measures to shore up confidence in the banking system after the failure of banks threatened to trigger a broader financial crisis.

What happened to Silicon Valley Bank?

• California-based Silicon Valley Bank, the 16th largest bank in the United States, was closed by the California Department of Financial Protection and Innovation.

• SVB was deeply entrenched in the tech startup ecosystem and the default bank for many high-flying startups. 

• Its abrupt fall marked one of the largest bank failures since the 2008 global financial crisis.

• The bank served mostly technology workers and venture capital-backed companies, including some of the industry’s best-known brands.

• Silicon Valley Bank began its slide into insolvency when its customers, largely technology companies that needed cash as they struggled to get financing, started withdrawing their deposits. 

• The bank had to sell bonds at a loss to cover the withdrawals, leading to the largest failure of a US financial institution since the height of the financial crisis.

• The bank failed after clients — many of them venture capital firms and VC-backed companies that the bank had cultivated over time — began pulling out their deposits, creating a run on the bank.

• Bank runs occur when customers or investors gripped by panic start withdrawing their money, causing the bank to be incapable of paying its obligations as they come due.

How will it affect startups?

• The abrupt collapse of the SVB has left Silicon Valley entrepreneurs unnerved and jittery.

• The collapse of SVB sparked concerns over whether small-business clients would be able to pay their staff.

• It has also pushed tech investors and startups to scramble to figure out their financial exposure and the impact on their ability to operate, at a time when many businesses were already on edge from widespread layoffs.

• In an effort to shore up confidence in the banking system, the Treasury Department, Federal Reserve and Federal Deposit Insurance Corporation (FDIC) said that all Silicon Valley Bank clients would be protected and able to access their money. They also announced steps that are intended to protect the bank’s customers and prevent additional bank runs.

• Most Indian software-as-a-services startups with a presence in the US and firms linked to incubator Y Combinator are among entities that will feel the heat of the Silicon Valley Bank collapse but the impact is likely to be short-term.

• Seeking to ward off the impact on Indian enterprises, Minister of State for Electronics and IT Rajeev Chandrasekhar said he will meet representatives of startups this week to assess the impact of their exposure to Silicon Valley Bank which was deeply entrenched in the tech startup ecosystem.

Third largest bank failure in US history

• Signature became the third-largest bank to ever fail in the US, behind Silicon Valley Bank and Washington Mutual in 2008.

• Signature was a commercial bank with private client offices in New York, Connecticut, California, Nevada and North Carolina, and had nine national business lines including commercial real estate and digital asset banking.

• As of September, almost a quarter of its deposits came from the cryptocurrency sector, but the bank announced in December that it would shrink its crypto-related deposits by $8 billion.

• Signature Bank announced in February that its chief executive officer, Joseph DePaolo, would transition into a senior adviser role in 2023 and would be succeeded by the bank’s chief operating officer, Eric Howell. DePaolo has served as president and CEO since Signature's inception in 2001.

• The bank had a long-standing relationship with former President Donald Trump and his family, providing Trump and his business with checking accounts and financing several of the family's ventures. 

• Signature Bank cut ties with Trump in 2021 following the January 6 riots on Capitol Hill, and urged Trump to resign.

• Signature, like SVB, had a clientele concentrated in the tech sector, and the securities on its balance sheet had eroded as interest rates rose.

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