The financial industry has been shaken by the sudden fall of Silicon Valley Bank (SVB), the second largest bank failure in US history. SVB had a significant role in the climate tech industry, particularly for early-stage companies, and its collapse has been felt as project investments may be delayed and the financial costs of startups will rise. SVB was a major provider of liquidity to venture capital (VC) equity as startups sought to commercialize and scale their products, and its demise has raised questions about how to get other lenders to fill its shoes.
Federal investigations into the bank have been launched by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) while the Federal Reserve is conducting an internal review of its oversight and regulation of the bank. Stock sales by bank executives in the days leading up to the Bank's collapse are also under scrutiny.
The market took a hit due to the financial sector being hit by a double blow from SVB's collapse and the worries about the health of Europe's second largest bank, Credit Suisse. The total market capitalization of the 6 biggest banks in the US is down $183 billion from February 1, 2020.
Deposits at SVB nearly doubled from $115 billion in 2020 to $212 billion by the end of 2022, raising questions about why this had not been noticed by regulators. It is possible that a 2018 deregulation law that walked back the Dodd-Frank regulations enacted in the wake of the financial crisis of 2008 had enabled this.
The collapse of SVB has underscored the risk to an industry that is dependent on one source of financial support too much and has highlighted the need for diverse financing sources. With US climate tech venture capital funding of $28 billion in 2022, more than double 2020 and quadruple 2018 levels, there is a great demand for investment, making it vital for the financial industry and government to move quickly to a point of diverse financing sources.