On March 10th, US banking regulators shut down the Silicon Valley Bank and took control of customer deposits in the bank concerned.
The moves came in the wake of a failure to raise money and a cash crunch faced by the Silicon Valley Bank (SVB), a key lender that catered to start-ups, venture capitalists, and tech firms.
Therefore, United States regulators seized the assets of the bank based in Santa Clara, California. This trouble prompted a fiasco of customer withdrawals amid fears about the financial state of the banking sector.
What led to the collapse?
The 16th largest bank in the US, the bank saw an efflux in deposits as tech companies profited during the period of the COVID-19 Pandemic.
In order to plug in the loss caused by the sale of assets, which were mainly US government bonds—traditionally one of the safest options for investments, but one that had been severely affected by the high rate of interest—the bank said it tried to raise $2.25 billion.
Furthermore, the news prompted fear among investors and customers. Many customers resort to withdrawal to stay above water.
In addition, with the cash crunch, the bank had to sell the bonds at heavy losses. As a result, the seized shares saw their most significant one-day drop the day before.
It also seized Signature Bank, based in New York, a day later, which had significant exposure to investors in the digital asset and cryptocurrency sectors.
State response to the Crisis in making:
Amidst fears about the financial health of the banking sector, President Biden’s administration moved in with the Federal Reserve, the US Treasury Department, and the Federal Deposit Insurance Corporation (FDIC), deciding to guarantee all deposits at SVB.
In addition, with the aim of reassuring the population of a sound banking sector with the backing of the administration, Biden made the announcement at the White House: “Your deposits will be there when you need them.”
Similarly, Rajeev Chandrashekhar, the Union Minister of State for Information and Technology, met with Indian start-ups to evaluate the impact of the collapse of the tech startups based in India and help them stay afloat.
Prior to the seizure, on Thursday night, Rajeev Chandrashekhar appeared to mention in a Twitter space chat: “The issue is, how do we make start-ups transition to the Indian banking system rather than depend on the complex cross-border US banking system with all its uncertainties in the coming month?”
How does it impact start-ups?
Over the past several years, Silicon Valley Bank has become a go-to banking institution for start-ups and tech companies, primarily because of its flexibility in numerous aspects that complement the ecosystem of a start-up.
In addition, Finance Ministry officials indicated that the collapse was likely to impact a few Indian tech start-ups as well as IT firms.
Does the collapse of Silicon Valley Bank put the climate techs in trouble?
The demise of the 16th largest bank in the United States, one of the most preferred lenders of choice for climate tech start-ups primarily in the initial stage of their set-up, has now left them stranded.
In recent times, businesses with the mission of combating climate change by mitigating Green House Gas (GHG) emissions or addressing the impacts of global warming with the help of technology have started gathering colossal attention.
Therefore, post-collapse start-ups may face higher financing costs wherever they next choose to finance opportunities, leading to more difficult borrowing terms for the budding industry.
There are some, however, who disagree, including the United Nations climate envoy Mark Carney, who does not expect a “material” impact on climate technology funding.
Climate technology and the new trend they are setting:
Globally, capital funding for climate startups is well underway. An over surge in growth in the 2010s, followed by a halt due to the COVID-19 Pandemic and then a boom in 2021.
Previously, the 2022 report by the UN Environment Programme, Copenhagen Climate Centre (UNEP), pointed out that financial interventions are important to compensate for viability gaps, to help resolve market failures, as well as to contribute to market creation for climate technologies.
In addition, the report highlighted the need to focus on both technological and institutional dimensions.
Despite the encouraging signals, there is a glaring indication that more investment and capital are needed for sustainable energy.