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how Silicon Valley bank has collapsed in 2023

Author Name : Harish Kumar bairagi     |     Date : 06-06-2023
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Silicon Valley was not a megabank like Goldman Sachs or JPMorgan. Silicon Valley Bank (SVB) is a financial institution which provides financial support to Tech companies , startups , and venture capitalists. Founded in 1983 , it has become a leading bank for VC ,startups , and entrepreneurs. It was offering various services such as loans, deposits, and investment management to tech companies and startupsIt has become a part of the startup ecosystem , it has delivered funding support to various startups of silicon valley such as Tesla, Uber, and LinkedIn.It has a unique way to analyze the tech industry for startups and has made it the first choice of startups to manage their investment and capitals.It was the 16th largest U.S. bank before its collapse.
Let's flask back in 2023. What happened and Sillion Bank collapsed?

How did SVB collapse?
It is the biggest U.S. bank to fall since the global financial crisis of 2008.
This failure due to Silicon valley investment strategy they was heavily invested in one financial instrument , they was invested din Us treasury Bills Securities Bonds.
When interest rates were low during the tech boom of 2020–2021 due to covid pandemic , SVB invested the money which was received from depositors in long-term Treasury bonds. An interesting concept in economics is when interest rates rise then Bonds prices fall and vice versa.

 Meanwhile interest rates were at historic lows,SVB bank put billions of dollars into long-term US Treasury bonds. Government backed bonds are seen as secure, modest investments. However, long-term bonds only pay out in full when they are held until maturity.  Otherwise, they run the danger of losing the value of investment if interest rates rise.
In 2022 the Federal Reserve started raising interest rates aggressively to reduce inflation. The value of government bonds, particularly those held by SVB, suffered as a result of billion dollar losses. The bank’s stock value dropped by more than 60% in a day.
After this bad news:  Depositors and creditors of Silicon Valley Bank (SVB) lost money when the bank collapsed on March 10, 2023. The bank's collapse was caused by a number of factors, including rising interest rates, a decline in the value of tech stocks, and a failed capital raise attempt and illiquidity . Experts say that the failure of SVB won't have a big impact on Indian banks and economy because they are more protected and controlled by RBI oversight.