A meal deliveryman walks to the headquarters of the Silicon Valley Bank (SVB) in Santa Clara, California, the United States, March 10, 2023. (Photo by Li Jianguo/Xinhua)
By Zhang Qian, Heng Lihan
The collapse of Silicon Valley Bank (SVB), the 16th largest bank in the United States, reveals the failure of U.S. monetary policy and the policy in the technology industry.
On March 11, Silicon Valley Bank was closed after its depositors -- which were mainly struggling tech start-ups -- began a run on the bank, raising systemic "contagion" worries across the country and sending ripples through the global financial systems.
Silicon Valley Bank’s collapse stems partly from U.S. failed monetary policy, which featured aggressive rate hikes over the past year.
The problems of this bank suggest that because we're in a higher interest rate environment, assets that it holds, many of which are Treasury assets, or mortgage-backed securities that are guaranteed by the government lose market value, said U.S. Treasury Secretary Janet Yellen in a recent interview with CBS news.
To continue to fight against inflation, the U.S. Federal Reserve implemented its eighth rate hike in February since it began tightening in March last year, boosting the target range for the federal funds rate to 4.5-4.75 percent.
Owing to rising interest rates, the bank lost 1.8 billion U.S. dollars in the sale of U.S. treasuries and mortgage-backed securities it had invested in. Later on Thursday, it announced a plan to raise more than $2 billion in capital to help offset losses on bond sales, which led to its stock collapsing 60%, forcing the bank to close its door.
Although the failed monetary policy leads to SVB’s collapse, there is an underlying reason behind it -- the U.S. tech policy which undermines its tech industry.
The U.S. has long engaged in technology sanctions and embargoes, export controls, strict investment reviews and other measures.
And the U.S. practice of decoupling and disrupting global industrial and supply chains has taken a heavy toll on the development of its own tech sector.
Significant layoffs have occurred in the U.S. tech industry. More than 94,000 workers in U.S.-based tech companies (or tech companies with a large U.S. workforce) have been laid off in mass job cuts so far in 2023, according to a Crunchbase News tally.
SVB catered to tech clients, but with the tech industry losing steam, the bank faced shrinking deposits of its clients.
Ma Wei, an assistant researcher at the Institute of American Studies of the Chinese Academy of Social Sciences, said that the U.S. tech policy has a huge impact on the operations of U.S. tech companies, many of which have no choice but to cut business with China, the world's largest market.
What behind the Silicon Valley Bank’s crisis is actually a funding and business crisis for U.S. tech companies, Ma added.
Ding Yifan, a researcher at the World Development Institute of the Development Research Center of the State Council, said that U.S technology sanctions would hurt the interests of Chinese companies, but not fatal; in contrast, it is the U.S. companies who would suffer a fatal blow from the sanctions, which is quite ironic.
Ding said the U.S. is “shooting itself in the foot”, which can be seen in the field of chips.
China is the world's largest chip consumer market, if the U.S. does not sell chips to China, then to whom will it sell, he asked rhetorically.
SVB has long been an important platform that played a pivotal role in serving the startup community and supporting the innovation economy in the U.S..
How will its decline indicate the fate of U.S. tech industry? Perhaps like what Garry Tan, president of the start-up accelerator Y Combinator, warned, that the shockwave will impact the U.S. technology industry and “ultimately set back U.S. competitiveness by a decade or more”.