All of the new technology being developed on a consistent basis is eye-catching, but the money to develop them doesn’t grow on trees – it comes from places like the Silicon Valley Bank. However, the Silicon Valley Bank suffered from a catastrophic collapse all of which occurred under 48 hours – leaving those dependent on its financial resources left stranded, such as those in the tech industry.
👉 Why did the Silicon Valley Bank collapse, and how does it impact the tech industry in its endeavor to become more sustainable and reduce its impact on climate change?
What is the Silicon Valley Bank?
The Silicon Valley Bank started as an idea from Bill Biggerstaff and Robert Medearis, who eventually put their idea in motion in 1983 with the Silicon Valley Bank’s CEO, Robert Smith, and opened the first branch of the Silicon Valley Bank in the Bay Area of California. The Silicon Valley Bank became available to the public in 1988, and began to expand into the capital world by 1989.
The Silicon Valley Bank, also known as SVB for short, ultimately served as a division of the SVB Financial Group, and the Silicon Valley Bank was also the 16th largest bank in the United States – demonstrating how several businesses, projects, and other entities may have relied on the Silicon Valley Bank for financial support in their endeavors towards sustainable development.
👉 Overall, the Silicon Valley Bank held almost $210 billion dollars in assets as of December 2022.
The Silicon Valley Bank served as a business to provide financial services for all companies, no matter the financial progress they had made so far. However, the Silicon Valley Bank was most known for helping startups or firms backed by venture capitals to help them propel their business ideas towards greater success and awareness. Almost half of the entities that the Silicon Valley Bank supported were either technology or health care related endeavors.
The Silicon Valley Bank exceptionally rose to prominence in its final three years of existence between 2019 and 2022 – where the SVB was able to triple in size after the pandemic and ultimately become one of the most well-used commercial banks in the United States before its collapse.
Why did the Silicon Valley Bank Collapse?
In conjunction with the increase in deposits and assets, the Silicon Valley Bank began to use their funds to buy treasury bonds and other low risk, long-term debts in order to retain their financial standing. This is not out of the ordinary, as banks typically seek to make money off of the money of their customers.
👉 Given the Silicon Valley Bank had grown so much between 2019 and 2022, its collapse was more devastating than it would have been if SVB has crashed earlier on in its existence.
However, due to inflation and rising interest rates, those low-risk investments suddenly became more difficult for the Silicon Valley Bank to pay off – meaning that any bonds held by the SVB started to decline in value, leaving the Silicon Valley Bank in newfound financial peril. Once this started to happen, many customers of SVB began to remove funds from their accounts in case the Silicon Valley Bank were to crash.
The Silicon Valley Bank tried to turn around the situation by selling some of their investments, but it was too late – with the Silicon Valley Bank losing almost $2 billion. In addition to this, some refer to the start of the collapse of the Silicon Valley Bank to the Dodd-Frank Act – which served as a major regulation for banks in the midst of the 2008 financial crisis. This is because the Dodd-Frank Act required banks with over $50 billion dollars in assets to be subject to additional financial standards, and given the Silicon Valley Bank did not meet this threshold – the financial situation spiraled out of control.
Some believe that if the Silicon Valley Bank was eligible to adhere to the Dodd-Frank Act, that the Silicon Valley Bank would have never collapsed as regulators would have caught the problem long-before the bank’s collapse and would have allowed time to course correct.
What is the Timeline of Events for the Silicon Valley Bank Crash?
While the Silicon Valley Bank’s collapse looks like it only happened within a matter of days, the reality is the demise of the SVB was a work in progress.
It started on March 8th, where the Silicon Valley Bank had announced it had lost $.18 billion dollars and had the intent to re-instill those funds.
The following day, on March 9th, SVB Financial Group’s stock completely crashed when the market opened – this is when customers started to remove their money from the Silicon Valley Bank.
On March 10th, the Silicon Valley Bank was prohibited from trading as federal regulators had announced that they were set to overtake the operations for SVB – but these regulators were unable to find an entity to buy SVB, and this is when the Silicon Valley Bank was officially doomed.
Following the failure of federal regulators to find a new home for the Silicon Valley Bank, it was announced that all customers would be allowed to retrieve their funds whether they had insurance or not due to the bank’s upcoming foreclosure. The SVB Financial Group officially filed for bankruptcy on March 17th of 2023.
What is climate tech?
Climate tech refers to technologies that are designed and manufactured to reduce greenhouse gas emissions and the overall impact that modern technology often has on the environment.
👉 Technology can be considered as climate tech when the device or design seeks to avoid or directly reduce emissions, aids in the transition to cleaner energy following the current impact technology has had on climate change, or if the technology helps us to understand and foreshadow the impact of climate change – such as with Artificial Intelligence.
Climate tech experienced an oversurge of growth for five years from 2013 to 2018, and following a halt due to the pandemic – it skyrocketed again in 2021, smack in the middle of when the Silicon Valley Bank was experiencing the most growth in customers and financial assets.
Why does the Silicon Valley Bank’s demise put those in climate tech in trouble?
The Silicon Valley Bank served as a major financial resource for those in the tech industry, with many of those companies having relied on the financial services and support of the Silicon Valley Bank to help fund the research and development to create more sustainable technology. Therefore, with the collapse of the Silicon Valley Bank – it means that in the short-term, many of those in the tech industry will not have the financial resources necessary to develop new, cleaner technologies.
The good news is that the FDIC, or the Federal Deposit Insurance Corporation, ensures that all of the money can be procured by the initial investor – as long as the investment was under $250,000. If there were customers or investors of the Silicon Valley Bank with over $250,000 dollars worth of investments or deposits, which is estimated to be the majority of previous clients of SVB – there will be financial losses, especially if their funds were uninsured. However, the Federal Reserve has imposed an exception, and will allow all depositors to be refunded the entire amount whether their funds were insured or not. The bad news is that investors aren’t going to be granted the same level of protection following the collapse of the Silicon Valley Bank, as the FDIC isn’t able to protect them – even in the midst of a sudden bank demise.
👉 The Silicon Valley Bank provided financial services for several companies and projects in the technology industry, and with many of those technology projects having used the SVB for investments – those individuals may never see the entirety of their funds again. This is likely to set back the potential progress to be made for those in the tech industry, as they are suddenly short on funds and will have to spend their time allocating their money elsewhere instead of focusing on future projects for climate tech.
Even more so, it is likely that there may have been projects already in progress that will now need to be halted throughout the climate tech industry due to the crash of the Silicon Valley Bank.
How can everyone who was a part of the Silicon Valley Bank Collapse move forward?
The damage and downfall of the Silicon Valley Bank has already occurred, and now all that’s left to do is help all of those involved pick up the pieces and move forward the best they can – and that includes any of those who made investments with the Silicon Valley Bank for their climate tech companies or projects. That being said, picking up the pieces isn’t going to be easy given the collapse of the Silicon Valley Bank is the largest bank to crash since 2008’s financial crisis.
One of the best things that companies can hope for is that financial institutions and regulations are well equipped to help them in the midst of the collapse of the Silicon Valley Bank. For example, OSFI, or the Office of the Superintendent of Financial Institutions in Canada, helped to protect Canada’s assets from the collapse of the Silicon Valley Bank by overtaking the operations in Canada – despite the fact that the Silicon Valley Bank served as a paramount financial resource for those within the tech industry. Therefore, from a federal perspective – all countries with assets tied to the Silicon Valley Bank should seek to remove them as soon as possible to prevent any financial consequences.
It may take a while for those in climate tech who have lost their investments due to the crash of the Silicon Valley Bank to rebuild their financial resources again. Luckily, with the global awareness for sustainability on the rise, there are several different types of investments that those in climate tech can look into with other banks: such as ESG investments, impact investing, and socially responsible investing.
In the future, the best way to prevent the demise of a large bank such as the Silicon Valley Bank is to instill better federal regulation to monitor the activities of banks before the financial consequences get out of hand, and with inflation still on the rise – reconsidering the threshold of the Dodd-Frank Act might be worth a second thought for the sake of both climate tech and the future of our planet.
What about Greenly?
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When banks like the Silicon Valley Bank collapse, it can make people lose faith in competent banking that reduces its impact to the environment, but fear not – Greenly’s still got you covered.
Book a demo today to see how Greenly can help you with various sustainable investments.
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