The Silicon Valley Bank Collapse

The Silicon Valley Bank Collapse

What Happened?

On Friday, Silicon Valley Bank (SVB) was closed by the California Department of Financial Protection and Innovation, representing the second-largest failure of a financial institution in US history. SVB, whose client base included startups and venture-backed technology and healthcare companies, had invested its customer deposits primarily into longer-term securities. As interest rates rose during 2022 and 2023, these securities significantly lost their value.

Last Wednesday, SVB announced it would incur a $1.8 billion loss on the sale of $21.0 billion of assets, concurrently attempting to raise $2.25 billion in capital in response to a potential Moody’s downgrade. Beginning Thursday, depositors rushed to withdraw their funds. On Friday, SVB was shut down after concerns about its liquidity and solvency.

Citing systemic risk by New York State and federal agencies, New York-based Signature Bank was closed on Sunday.


What is Happening Now?

The FDIC was appointed as receiver for both banks, setting up Silicon Valley Bridge Bank, N.A. and Signature Bridge Bank, N.A. as the bridge banks. Certain assets were transferred to maximize value for a future sale and to maintain banking services in the communities served by SVB and Signature.

The Treasury Department, Federal Reserve, and FDIC in a joint statement enacted the systemic risk exception, which bypasses the “lowest-cost requirement” in connection with bank failures. Accordingly, the FDIC has guaranteed all insured and unsured deposits, at no cost to taxpayers, through a special assessment charge to other banks.

The Federal Reserve announced the creation of the Bank Term Funding Program (BTFP), which will allow banks to obtain financing, for up to one year, to address liquidity pressures.

What To Do Now

Essential Banking Services (i.e. Checks, Online banking and Bill Pay Services)

Establish new banking relationships. Additionally, even if you are not directly impacted by the SVB and Signature situations, consider opening new accounts at different financial institutions and diversifying your risk.

Credit Facilities / Letters of Credit (LCs)

All loan and credit facilities are frozen at SVB and Signature and therefore, you should not expect to be able draw funds. You will need to seek bridge financing or other forms of funding elsewhere. Although it is the FDIC’s intention to sell all loans, whether to a successor bank or in pools, you should be proactive on finding a replacement loan facility with a new financial institution.

If SVB or Signature issued a Letter or Credit (LC) on behalf of your company, the beneficiary may demand that your firm provide a replacement LC from another financial institution. Consider proactively contacting the beneficiary (i.e. landlord, escrow agent, etc.) to discuss options to replace the existing LC.

Cash is King

Preserve your liquidity and prepare for continued uncertainty, review the banks currently holding your company’s deposits, and diversify your banking relationships to reduce exposure.

What To Do Next

Prepare a 13-week Cash Flow and Annual Financial Projections

Determine whether your company has adequate cash flow to cover costs in the coming weeks and months, assuming a line of credit will no longer be accessible. Identify areas for cost cutting and operational improvements. Additionally, identify and counteract liquidity bottlenecks before they happen.

Review Credit Agreements

Consult with legal counsel regarding your rights pursuant to your existing credit agreements, and consider negotiating new terms or seeking new sources of credit. Review and analyze financial and non-financial covenants on any and all credit agreements. It may also be pertinent to speak with investors and other funding sources, and identify opportunities to obtain additional capital and/or financing.

For more information on how this applies to your business, contact our expert, Charles Berk, Lead Managing Director of CBIZ Corporate Recovery Services, .

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The Silicon Valley Bank Collapse Friday, Silicon Valley Bank (SVB) was closed by the California Department of Financial Protection and Innovation, representing the second-largest failure of a financial institution in US history.2023-03-15T17:00:00-05:00

On Friday, Silicon Valley Bank (SVB) was closed by the California Department of Financial Protection and Innovation, representing the second-largest failure of a financial institution in US history.

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