SVB, short for Silicon Valley bank, created shockwaves in the markets last week. The bank sold its $21b bond portfolio at a loss. Depositors responded by removing assets from the bank en-masse, initiating a classic bank run as rumors of the bank’s insolvency spread over social media. Popular gaming platform, Roblox, announced they were unsuccessful in withdrawing $150m of company funds before the bank collapsed. What happened with SVB to cause its implosion?
What Happened with SVB?
SVB is a huge part of the US tech industry. The California-based lender specializes in providing banking services for tech companies of all sizes, from startups to late-stage publicly traded corporations. Before this week, the bank held $209b of funds under management. They were the 15th largest bank in the country and the 2nd largest bank in US history to fail. In fact, this is second only to Washington Mutual’s failing during the Great Financial Crisis of 2008.
Like many other banks, SVB took in more deposits than it could lend out during the covid-19 pandemic. The bank responded by buying US Treasuries. However, after the Federal Reserve hiked interest rates to combat inflation, the value of SVB’s US Treasuries plummeted.
After exiting their bond investments at a loss and unsuccessfully raising capital by selling company shares, many large depositors withdrew money from the bank. Word quickly spread throughout the close-knit tech community and created a snowball effect. SVB did not have enough liquidity on hand to process the amount of withdrawal requests. So, eventually, regulators stepped in to shut the bank down.
Since then, the Treasury Dept, FDIC, and Federal Reserve issued a joint statement promising the use of government funds to guarantee depositor funds.
How does this Impact Roblox?
Roblox holds $150m of capital with SVB. On Friday, Roblox announced, “Of Roblox Corporation’s $3 billion of cash and securities balance as of February 28, 2023, approximately 5% is held at Silicon Valley Bank. Thus, regardless of the ultimate outcome and the timing, this situation will have no impact on the day to day operations of the Company.”
Good news for the gaming giant and metaverse builder. Roblox shares are up 10% from Friday morning, clearly demonstrating the lack of concern about the company’s financial wellbeing moving forward.
Thanks to the government intervention to protect depositor accounts, Roblox will be able to recover all $150m of its company funds held with SVB.
Are Other Banks in Danger of Failing?
Regional bank stocks dumped heavily in Monday’s early trading session. SVB’s fallout led to 12 different banks having the trading of their stocks halted. President Biden even appeared on national television to promise government assistance to the troubled bank sector. Moreover, he pledged to do everything possible to avoid any further contagion risk.
Bank stocks responded favorably. The stock price of First Regional Bank, for example, skyrocketed over 50% on Tuesday after shares dropped more than 75% after the SVB news broke.
Aided in part by a favorable CPI print today, it seems like regulators managed to avoid a larger financial disaster. Investors now look towards next week’s Federal Reserve. This could possibly signal an end of the 2022-2023 bear market.