Silicon Valley Bank's (SVB) collapse was caused by a crisis in banking rather than technology, according to Anne Glover, CEO and co-founder of Amadeus Capital.
After leading Apax Ventures, a well-known venture capital firm, Anne Glover became a prominent tech investor and joined Amadeus.
In 1997, she co-founded Amadeus alongside Hermann Hauser, a key contributor to the creation of the first Arm processor.
A Silicon Valley Bank logo is seen in Tempe, Arizona, on March 14, 2023. - With hindsight, there were warning signs ahead of last week's spectacular collapse of Silicon Valley Bank, missed not only by investors but by bank regulators. Just why the oversight failed remained a hot question among banking experts, with some focusing on the weakness of US rules.
"Utterly Irresponsible"
As reported by CNBC, Glover made the statement at a tech investor showcase in east London, calling the practices by Silicon Valley Bank's management "utterly irresponsible."
According to Glover, SVB took cash deposits from VCs and hedge funds, which they then invested in first-year mortgage bonds that eventually decreased in value as interest rates rose.
The failure of SVB was due to a fundamental banking error; SVB's management failed to hedge the interest rate, resulting in a mistake that was "really basic banking," according to Glover.
The tech CEO emphasized that the failure of SVB had nothing to do with the tech community, even though the collapse significantly impacted the industry.
It is worth noting that SVB played a critical role in the tech industry by providing financing to firms that traditional banks often rejected. Its closure and government takeover was caused by the withdrawal of money by numerous startups and venture capitalists.
SVB had previously made an effort to raise $2.25 billion in capital to address a $1.8 billion shortfall in its balance sheet, which was triggered by the sale of $21 billion worth of bonds at a loss.
SVB's UK Branch
On the other hand, SVB's UK branch was sold to HSBC for a symbolic amount of £1, with the assistance of the government and the Bank of England, ultimately safeguarding £6.7 billion ($8.3 billion) in deposits.
Glover, who also serves as a non-executive director on the Bank of England's board, commended the central bank's ability to provide a resolution that was satisfactory for the UK, in contrast to the US's handling of the situation.
Banks are facing significant pressure due to the increase in interest rates, which has made debt more costly.
In addition, the banking industry is facing immense pressure due to rising interest rates, resulting in higher debt costs.
According to CNBC, banks are also currently holding government bonds on their balance sheets, which are losing their value as interest rates surge.
Credit Suisse's downfall is the most significant illustration in the banking sector so far. The Swiss bank was rescued by its competitor, UBS, in a low-cost transaction facilitated by the Swiss government.
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