Silicon Valley Bank's crisis is due to the challenges faced by its clients, though the problems could now get worse.
For the Silicon Valley region, the troubles land at a particularly difficult time. Venture capital deal activity sank over 30% last year to $238 billion, according to. While that's still a historically high number, the dearth of IPOs and continuing drawdown in valuations among once highfliers suggests that there's much more pain to come in 2023.
"Losing a major debt provider in the venture debt market could drive the cost of funds up," Orn said. In January, SVB expected average deposits for the first quarter to be $171 billion to $175 billion. That forecast is now down to $167 billion to $169 billion. SVB anticipates clients will continue to burn cash at essentially the same level as they did in the last quarter of 2022, when economic tightening was already well underway.
Concern has quickly turned to the potential contagion effect. Does the bank's acknowledged misfortunes lead clients to pull their money and house it elsewhere? That question was circling among investors and tech execs on Thursday, even after CEO Greg Becker wrote in a letter to shareholders that, the bank has "ample liquidity and flexibility to manage our liquidity position."
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