When news broke that Silicon Valley Bank was in dire trouble, US investors, who still have vivid memories of the global financial crisis, naturally panicked.
A group of about a dozen tech founders with cash with SVB reportedly went to SVB's Manhattan location on Park Avenue, journalist Eric Newcomer said in an online post.
According to Newcomer, who writes a newsletter on "the inner workings of the startup industry", one of the founders who showed up at the bank branch was former Lyft executive Dor Levi.
Levi confirms this in a LinkedIn post he made three days ago, noting, "SVB was our 'safe' bank with the largest allocation compared to our other accounts".
But as news of SVB's dire situation unfolded — on March 8, Silicon Valley Bank (SVB) reported a $US1.8 billion ($2.7 billion) loss on its sale of US Treasury securities - investors got nervous.
Levi says he became "more concerned by text messages, emails, and notes about VCs telling their Portcos (portfolio companies) to move funds out".
By the time Levi and the other investors decided to pull their money from the bank, the "SVB site was down, my account was blocked, and bankers were unreachable".
Levi says it took "about 16 hours for SVB support to unblock my account" and he also "went to the NY branch as it opened to try and get a cashier's check".
He says US building managers at SVB's Manhattan branch "called the cops" on him and the other investors who had shown up to get their money.
A photo taken by Levi and posted on Newcomer's site shows the New York Police Department's vehicle outside the bank.
Silicon Valley Bank was shut down on Friday morning by California regulators. Shares in the bank fell 66 per cent just before the news of the collapse.
Based in Santa Clara, and with about $US200 billion in assets, SVB was the 16th largest bank in America, making it the biggest bank failure since the global financial crisis of 2008.
About half of all venture capital-funded startups in the US are customers of SVB. That's about 65,000 startups.
As SVB depositors began withdrawing their money, prominent venture capital firms began advising the companies they invested in to pull their business from SVB.
Unlike the global financial crisis, when regulators were criticised for moving too slowly, this time the reaction was swift.
On Monday (Australia time), Treasury Secretary Janet Yellen, Federal Reserve Board chair Jerome Powell and Federal Deposit Insurance Corporation (FDIC) chairman Martin Gruenberg announced "decisive actions to protect the US economy" by ensuring that depositors would be protected.
Despite that, there are fears that the collapse of Silicon Valley Bank could still have ripple effects across the globe.
It also comes amid the collapse of two other banks: Silvergate Capital, a central lender to the crypto industry, which said last week that it would be winding down operations and liquidating its bank.
And Signature Bank, which also had a strong crypto focus but was much larger than Silvergate, was seized on Monday morning (Australia time) by banking regulators.
Daniel Ives, the managing director of US-based Wedbush Securities, told ABC News that while regulators should be applauded for moving fast to protect depositors, the collapse of SVB will change the tech startup scene for good.
He says SVB was "an artery" for tech startups and venture capital financing for decades, and its disappearance could leave startups struggling to get funding.
As a result, he fears some startups could go under, while others may be forced to merge.
Meanwhile, Betashares chief economist David Bassanese fears the collapse of SVB could spark a US recession, which would in turn exacerbate Australia's current economic problems and raise the risk of a recession here.
Here's a closer look at why the bank collapse unfolded and what the implications are for financial markets and the global economy.
'A debacle': How the SVB collapse unfolded
During the pandemic, SVB and many other banks were taking on more deposits than they could lend out to borrowers.
In 2021, deposits at SVB doubled, and whatever the bank could not lend out was instead invested in what was seen at the time as safe US Treasury securities.
Ives describes the whole event as "a debacle" and says, "there's no good answer to why this bank (SVB) put itself in this situation".
"In the coming years, they'll study this in terms of why it happened," Ives tells ABC News.
"Ultimately, these banks were not prepared. They were caught on the wrong side, and then ultimately had to raise significant capital and the bank run began.
"They bought treasuries and bonds. Where the value decreased, as the Fed (US Federal Reserve) raised rates, was significantly and ultimately, their assets were lower than their liabilities."
Regulators have also moved to protect deposits held with New York-based Signature Bank.
The Federal Deposit Insurance Corporation (FDIC) took control of Signature, which had $US110.36 billion ($165.5 billion) in assets and $US88.59 billion ($132.85) in deposits at the end of last year, according to New York state's Department of Financial Services.
Signature Bank and Silicon Valley Bank will be made whole, and "no losses will be borne by the taxpayer," the US Treasury Department and other bank regulators said in the joint statement.
The Federal Deposit Insurance Corporation (FDIC) usually protects deposits of up to $US250,000, but the FDIC confirmed they will backstop all depositors of SVB, not just those with smaller balances covered by standard FDIC protections.
However, FDIC also said that "shareholders and certain unsecured debt holders will not be protected", which some commentators fear could cause investors to sell shares in companies with exposures in the coming weeks.
Australia's tech sector has also been caught up in the collapse
Companies including Canva have money tied to the financier through the nation's major venture capital funds.
A spokesman for Canva told ABC News the company was "in the fortunate position of having the majority of our cash outside of their banking system and have safety nets in place to ensure our operations aren't compromised".
But Canva also warned of the contagion effect.
"Not everyone is as lucky as us and we'll be on the lookout over the days and weeks to come to see if there are ways we can be supportive of the broader ecosystem," Canva said.
Software maker Nitro says about US$12.18 million ($18.4 million) of the company's global cash reserves are held on deposit at SVB.
The company said it was "engaging regularly with its customers and partners to minimise the impact of any disruptions" and that it "is in the process of evaluating short-term funding solutions to address any immediate operational requirements".
Treasurer Jim Chalmers said they were aware Australian firms were impacted and the government was monitoring "potential impacts for Australia caused by the collapse".
"The initial advice we have received from regulators is that any fallout for Australia's broader financial system is unlikely to be significant," Chalmers said.
How are these bank collapses different to the ones that fell during the GFC?
It hasn't gone unnoticed on social media, that before joining the Silicon Valley Bank (SVB) as the chief administrative officer (CAO) in 2007, Joseph Gentile served as the chief financial officer (CFO) at Lehman Brothers' Global Investment Bank before the public collapse in 2008.
Gentile's connection to Lehman and SVB has sparked debate on platforms including Twitter, with some asking if this is "Lehman 2.0", referring to the collapse of Lehman Brothers in 2008, when it was the fourth-largest US investment bank.
Lehman collapsed on September 15, 2008, the final trigger for the global financial crisis.
Rabobank's global strategist Michael Every says the failures of Signature Bank, Silvergate capital and Silicon Valley Bank show how vulnerable parts of the financial system are.
"SVB, now being carved up, found itself in the curious position of having been brought down by being given too much money," Every notes.
"The bank was forced to liquidate long-duration assets at steep losses.
"This begs the question as to why the balance sheet wasn't hedged? Holding that kind of interest rate risk in the banking book is a big no-no."
Every says deposits in SVB were largely made by tech startups and "rich Californians and Democratic party donors, reportedly including Harry and Meghan, and Oprah".
"There are reputations at risk here, as the SVB board were all heavy hitters," he says, noting Gentile's position.
"Blaming Gentile over a financial crisis is a new variant on an old theme we are about to hear more of, we sadly expect. Because, 'You get a bailout! And you get a bailout! And you! And you!' is now being heard by everyone involved."
Ives says unlike with the global financial crisis, the SVB collapse does not pose a systemic risk" because the world's biggest banks are "extremely well capitalised" post the GFC.
"This [SVB] is a regional bank that was much more levered to technology, and the startup ecosystem and Silicon Valley," he says.
"The overall banking system is in very strong shape. But they [regulators] need to make sure that this didn't cause a bank run among regional banks.
"You have to quickly extinguish the fire to make sure it doesn't spread. And that's what they [regulators] did."
He says despite that, these banks were the "foundation of the tech startup landscape".
He says going forward, lenders will be more "stringent" when it comes to funding startups at their door.
This, he says, "could definitely cause startups to fail, potentially merge or look for alternative financing".
"In other words, they can't go to the banks — they have to go to private equity [firms]," he says.
"This is going to put even more pressure on tech startups. It ripples to Australia, to Asia, to Europe to the rest of the world, because it all starts in Silicon Valley. It's a spider web that's tied together."
Is there a risk of wider economic contagion, including a recession?
Betashares chief economist David Bassanese says the collapse of Silicon Valley Bank could cause a US recession.
If that happens, it would force the Federal Reserve and Reserve Bank to pause their aggressive rate hikes.
He says the collapse also begs the question: how many other smaller banks are sitting on major paper losses and so are also vulnerable to a non-insured depositor run?
He warns despite depositors being protected, investors "may still panic" and "we may well see more bank failures".
"It's hard to believe there's not a few more SVBs out there somewhere – especially now many more analysts will be looking for them," he says.
"You may get many of these banks going under, or being unable to lend," Bassanese says.
"These banks are sitting on a lot of unrealised losses on their bond portfolio. And maybe technically, if they had to sell those bonds at market value, they could become insolvent."
He says that's how contagion can spread.
"They [regulators] protected depositors, but they haven't protected shareholders — nor should they, but that's the problem," he says.
Bassanese says while this collapse is different to that of major investment banks that collapsed during the GFC, credit conditions may still "freeze up businesses' access to credit" and that could cause a major fall in confidence.
"Even if you think that they [the banks] are not at risk of insolvency, you might still pull your money out anyway, because you're just scared of not being able to get your money as easily as you want," Bassanese says.
If that happens, he says it will cause "a hard landing for the US economy, and then that would flow through in the same way any recession in the US would flow through to Australia".
"Every time the US has gone into recession in history, we have had a downturn as well."
He says while a recession in Australia is technically defined as two quarters of negative economic growth, an increase in the unemployment rate of at least 1.5 per cent would cause major problems.
"We've already got our own homegrown problems like high inflation, RBA raising rates, slowing growth … and the last thing we want is a US recession."
AMP Capital's head of investment strategy Shane Oliver says "the market is still nervous".
"If it turns out to be a storm in a teacup and it's over in a week, then the Fed next week will return to what it does, which is looking at data and contemplating a 25 or 50 basis point increase in rates," he says.
"If there are still reverberations, then it would be hard to do a 50 basis points hike even if CPI [inflation] and retail sales figures justify it."
Either way, Oliver says, the implications of these bank collapses "will take time to play out".
