In the belly of tech.

LAST Friday, the tech industry in the US received a jolt. By late Sunday, catastrophe had been averted but not before the vulnerable innards of the tech industry stood exposed to the world.

The Silicon Valley Bank was in financial trouble long before it collapsed. One reason was that they had invested in bonds whose yield was lower than the rate of inflation. The bonds simply paid too little in interest even as the Federal Reserve began raising interest rates. This meant that the bank was not making as much money as it needed to meet the needs of its clients. When it tried to correct the situation, it ran into trouble.

Financial analysts and investors - jittery as ever in a climate of high inflation - took this as a sign of trouble ahead. Because the tech industry and tech investors are tuned into social media the panic spread fast, whetted by venture capitalists like Peter Thiel who said that anyone with money in the bank should withdraw it. It appears that many heeded this advice and started to withdraw huge sums of money causing a run on the bank. By Friday, the bank could no longer keep up with requests for deposits and collapsed. The Federal Deposit Insurance Corporation had come in and sent all the bank managers home, asking the tellers to stay.

The Silicon Valley Bank is not of the sort in which most people keep their money. Instead, the bank's major clients were Silicon Valley tech start-ups. The bank was known for giving loans to borrowers who may have been considered risks by conventional banks. Tech start-ups kept their deposits in the bank. This meant that unlike other regular banks that have a huge number of clients most of whom have a few thousand dollars in savings and checking accounts, it had fewer clients and those clients had large deposits. Much of these were used by tech start-ups to pay their own creditors, and of course, their employees. At the time of its collapse Silicon Valley Bank had $209 billion in assets.

In the US, money in accounts insured by the federal government cannot just disappear because a bank collapses.

The episode showed that the bank's collapse was a warning not only to the tech economy in the US but also abroad. This is because Silicon Valley Bank was one that helped tech start-ups from Mumbai to Beijing to open American bank accounts and be visible to venture capitalists that could fund the nascent companies. Many Indian start-ups, for instance, had accounts in the bank for just this reason and...

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