SVB: Why did Silicon Valley Bank fail and is a financial crisis next?

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The collapse of Silicon Valley Bank (SVB) has sent shockwaves through financial and tech circles.

On Friday, United States regulators seized the assets of the Santa Clara, California-based bank after depositors began withdrawing funds en masse amid fears over the lender’s financial health.

Since then, financial regulators around the world have raced to contain the fallout of SVB’s collapse, the biggest bank failure in the US since 2008, and shore up confidence in the global financial system.

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Why did SVB collapse?

As SVB’s name suggests, the bank’s business focused heavily on US technology startups. During the COVID-19 pandemic, the lender saw a surge in deposits as tech companies profited from providing entertainment and delivery services to people confined to their homes.

SVB invested much of this cash in US government bonds — traditionally one of the safest types of investment.

SVB’s troubles began when the US Federal Reserve started raising interest rates last year in response to soaring inflation, causing the value of those bonds to fall.

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