The Silicon Valley Bank collapse has shaken up the entire American banking and business ecosystem, since it had partnerships with almost half of tech and healthcare firms in the country. But its effects are being felt globally, as almost 60 Indian startups backed by YCombinator are also vulnerable, and could struggle to pay salaries while smaller firms may crumble. As a fallout of the crisis that hit SVB, a regional New York-based lender Signature Bank has also succumbed to a high outflow of deposits.
Stung by SVB collapse or crypto?
Apart from investments in tech firms, Signature Bank also had a considerable exposure to crypto assets, which had already left it on thin ice since the FTX crash. The dissipating confidence in virtual assets had also forced the Silvergate Bank to shut shop days before the Silicon Valley Bank fiasco. Signature Bank had also started accepting crypto assets in 2018, and has accounts of major crypto exchanges such as Coinbase and Paxos.
Shut down despite hopes of recovery
At the same time it was only the SVB collapse which triggered a massive withdrawal by Signature Bank customers on Friday. Many of them were concerned because their deposits surpassed $250,000, which is more than what the Federal Deposit Insurance Corporation guarantees. Although this outflow of funds had slowed down by Sunday, giving hope for Signature Bank's survival, the US banking regulator chose to close it down.
Among major players in the crypto market, Coinbase tweeted that $240 million of its funds are deposited with Signature Bank.
Bailout ruled out
With funds of big investors stuck in both SVB and Signature Bank, the authorities have dismissed speculations about a bailout similar to the rescue plan for Citigroup and Bank of America. Authorities said that a bailout is off the cards because of the reforms that were brought in to protect investors after the 2008 economic crisis.
(To receive our E-paper on WhatsApp daily, please click here. To receive it on Telegram, please click here. We permit sharing of the paper's PDF on WhatsApp and other social media platforms.)