Silicon Valley Bank collapse puts business owners on edge. Will Asian start-ups stay safe?
As soon as Indian businessman Ruchit G Garg had an inkling that the US-based Silicon Valley Bank (SVP) might not stay stable much longer, he tried to pull out the bulk of his deposits – but to no avail.
“[I] told my wife that there might be some concerns,” Garg said but asked her not to worry as they have a good business in India. He is the founder and chief executive officer of an agriculture technology platform – Harvesting Farmer Network – that helps millions of smallholder farmers across the Asian nation sell their crops.
US regulators have since closed SVP and taken control of its deposits. They have tried to reassure account holders that their money is safe. Just a couple of days after the collapse, the regulators, in an effort to prevent a spreading crisis, also shut down the New York-based Signature Bank.
SVB was a substantial lender to the tech start-up world. Its closure has lured in major uncertainty to the sector and even highlighted the threat of financial contagion in the global economy.
Nevertheless, Garg believes “things may be anxious for a few months, but it will all come back.”
Even analysts say most Asian start-ups will remain safe from the ripples created by the current turmoil in US financial markets. But the situation will definitely affect their ability to access the cheap global capital that had been of great help for them to expand in recent years.
In order to counter a pandemic-induced downturn and provide economic stimulus, central banks across the globe turned on the money taps. Eventually, Asian tech start-ups started witnessing an inward rush of funds. But this flow of money soon got replaced by interest-rate rises, led by the US Federal Reserve, to fight rampant inflation as Russia’s invasion of Ukraine caused the price of essentials to climb.
The value of long-term bonds held by the Silicon Valley Bank started getting undermined by these rate increases. A number of panicked investors rushed to withdraw their deposits, consequently causing the financial institution to collapse.