Why in News?

• The California-based Silicon Valley Bank (SVB), a cornerstone of the US technology and startup industries, recently failed, making it the biggest bank failure since the 2008 financial crisis.

What’s Today’s Article?

• What is SVB and How Big is it?
• What went Wrong at SVB?
• What Implications might there be for India?
• What Implications might there be for the World Economy? 

What is SVB and How Big is it?

What went Wrong at SVB?

 What Implications might there be for India?

• The tech industry is the biggest customer of SVB with a large number of Indian start-ups, especially in the SaaS (software as a service) sector that services US clients, having accounts at the bank.
• Aside from being a banking partner, SVB had also been an important lender to several Indian start-ups when the sector in India was starting to take shape around 2010-11.
• Among its most notable fundings was an investment of a total of $1.7 million in One97 Communications, the parent company of Paytm. Other start-ups that had received funding from SVB include Bluestone and Carwale.
• While the impact of SVB’s failure will be clear in coming days, many founders said that not being able to take out more than $250,000 from their accounts will hit them hard.
• Amid a funding winter, where availability of funds for start-ups is dwindling, this could prove to be a major roadblock, especially to young businesses.

 What Implications might there be for the World Economy?

• SVB is small by comparison with the nation’s largest bank - JPMorgan (with assets worth more than $3 trillion).
• A systemic bank crisis/bank runs happens when depositors lose trust in many banks and start withdrawing their deposits, preferring to keep hard cash with them.
• This is precisely what happened in 2008, when rumours about bank collapses in the US spread to India too and panicked depositors pulled money from private sector banks.