Fears of a modern-day bank run at Silicon Valley Bank, a financial institution used by many prominent venture capital-funded tech companies, rippled across markets this week as banks catering to the tech sector struggled amid concerns about higher interest rates and the economy.
Thursday evening, the parent of Silicon Valley Bank lost 60% of its value after announcing it was trying to raise more than $2 billion in capital. Shares continued to plummet Friday morning, and trading was eventually halted. The bank was seeking a buyer after failing to raise the funds, CNBC reported.
Some VCs were telling the companies they invested in to pull their money from the bank, Axios reported, while others preached calm.
Shares at major financial institutions like Bank of America, Citigroup and JPMorgan were not immune to market conditions, falling between 4% and 6%.
Billionaire and hedge fund manager Bill Ackman speculated in a series of tweets reported by CNN that Silicon Valley Bank could require a bailout.
The failure of @SVB_Financial could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash. If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered.
— Bill Ackman (@BillAckman) March 10, 2023
Driving anxiety in the banking sector is the ongoing fight by the U.S. Federal Reserve against inflation. As the Fed raises its benchmark interest rate, the value of bonds, typically a stable asset, starts to fall. That is not usually a problem, but when depositors grow anxious and begin withdrawing their money, banks sometimes have to sell those bonds before they mature to cover the exodus of deposits.
Silicon Valley Bank CEO Greg Becker advised investors to “stay calm” Thursday, according to The Information, warning that the bank had “ample liquidity to support our clients with one exception: If everyone is telling each other SVB is in trouble, that would be a challenge.”
Meanwhile, the tech sector has seen a bloodbath in recent months as nearly every major company—from Salesforce and LinkedIn to Twitter and Meta—has made huge staff cuts.