SVB Crisis & Its Aftermath: What Accountants Should Know?

The recent bank fallout is a frightening news for the already hyper-inflated US economy. There’s a storm on the horizon for accounting professionals as well. 

Silicon Valley Bank (SVB) was third in the count of banks which went down after Silvergate and Signature Bank. Other Banks, Republic and Credit Suisse were in the hot seat but they got support and new life. Rest of the banks responded to the rumblings by depositing $30 billion in the account of Republic.

For decades, Silicon Valley Bank (SVB) was a pillar for the startup and venture capital communities. On Friday, i.e., March 10, 2023, it collapsed, prompting the government to step in and seize control. Startup investors were busy over the weekend trying to locate new funding sources for their portfolio companies.

What caused a significant stablecoin to break its peg to the US Dollar in the cryptocurrency market. According to Business Today, the SVB collapse resulted in a $465 billion loss in worldwide financial markets.

Federal regulators began implementing emergency measures to prevent a broader banking catastrophe before midnight on December 12. They included seizing control of Signature Bank and moved to backup all depositors.

The collapse of SVB ranks as the second-largest bank failure in the American history. The bank borrowing rose dramatically to the tune of $152.8 billion in just two weeks. The bank’s turmoil prompts questions over the degrading health of banking sector and also starts a much bigger problem facing financial institutions and accounting firms.

So, what went wrong with these Banking Giants and what kind of ripple effects could this have in the tech sector and beyond? Read on to explore!

Silicon Valley Bank Use Case to Understand the Crisis

Silicon Valley Bank is a relatively conventional bank in Silicon Valley, California, USA. It acts in the same way as any other bank. It accepts deposits, disburses loans, and assists with payroll and payment processing, among other things, for its clients.

However, SVB is unusual because of its close connection to a single sector of the economy. It’s a bank that tech startups, venture capitalists, and private equity firms invest in and use frequently. In a nutshell, SVB’s clientele was extremely close-knit. It would carry out a wide range of specialized tasks that would benefit startups, tech firms, and the funds invested in them.

Besides being a major bank for tech startups, SVB had a significant presence in the wine sector. According to Jennifer Thomson, owner of Thomson Vineyards, a contract grower in Napa, grape growers have been attempting to identify which of their winery clients used Silicon Valley Bank for days because of the concern that they might not receive payment on time. 

How the Crisis Spiraled Out of Control? 

The SVB announced on March 8 that it would need to sell a significant portion of its securities. Plus, it would have to sell these assets, primarily treasury bonds and other items, which would incur a loss. According to them, they had to do so because many depositors were withdrawing their funds, and it had to make up for that lost cash. Selling some of its possessions would help SVB to fulfill all of these withdrawal demands.

After acknowledging the need to sell these items and appease depositors, the bank tried to boost public trust. “We have an investor set up to bring in some new money,” SVB spokesperson claimed. They added, “we’re going to take various actions to strengthen ourselves.”

It was evident the following day that neither the markets nor its depositors believed that would suffice. Soon deposit withdrawal spread  like a contagion. The capital raising, or additional funding, was conducted from March 9 to March 10. SVB aimed to have the new money by March 10 EOD. Finally, on March 10, efforts went into the oblivion and SVB called it quits.

Before this crisis, the 2007–2008 financial crisis also drew harsh criticism for the accounting industry. Yet, poor accounting was only a factor in the subprime mortgage crisis and the ensuing economic collapse. The crisis had a tremendous effect on the world economy and shook-up the US stock markets. The existing audit procedures and standards were questioned in the wake of the crisis, and although the Dodd-Frank Act resulted in some adjustments being made in the United States, more significant reforms was undertaken.

By The Digits 

  • $209 billion: Assets held in SVB at the time of collapse 
  • $165 billion: Amount SVB held in deposits, as of February 28, 2023  
  • 190: Number of firms with exposure to SVB that could be searching for new lenders 


Assets at the Time of US Bank Failures 

US Bank Failures

Source: Silicon Valley Bank is the second-largest US bank failure ever ( 

What Startup Founders were Doing During this Time? 

For instance, there’s a California-based startup called XYZ. One of the co-founders of XYZ said on March 9 that an investor received an email asking to take her money out. Following this, one of the other co-founders also began trying to withdraw her money as quickly as possible.

She tried to transfer different amounts in different bank accounts, whatever she could get out. Then the startup shut, their website crashed, and she couldn’t get back in. Something similar happened on March 10 in SVB.

Clients of SVB are often encouraged by their investors, other customers, or industry partners that it is time for them to withdraw their money, and they all rush to do it at once. 

A Timeline of Silicon Valley Bank’s Collapse 

Timeline of Silicon Valley Bank’s Collapse

A Lesson for Businesses and their Accountants 

The banking turmoil holds valuable lessons for various businesses and their accountants as it will have similar ramifications for the FASB Accounting Rules. The federal agencies will surely bring new amends in the Held-to-Maturity Debt Securities.

As per the current FASB Rules Investments-Debt and Equity Securities, bonds that are Held-to-Maturity (HTM) will now need to be measured at fair value. This rule is cascading problems whenever there is a liquidity issue and banks need to access funds. Therefore, it might be changed.

More changes will hit the 320-10-35-1 paragraph of FASB as well, which states that debt securities need to be reported at amortized cost and all relevant assets at fair value.

However, accountants must devise strategies to fix if something goes wrong for clients that are out of their control. Accountants don’t want to be outmaneuvered with a blank sheet of paper, with urgency for clients’ risk analysis.

One effective way businesses and their accountants can minimize the impact of such incidents is by spreading banking and credit risk with multiple relationships or accounts. Plus, it’s imperative to understand how businesses can monitor their premium suppliers’ and customers’ live credit scores.

In the worst-case scenario, accountants must take quick action, activate an emergency cash management system, or secure short-term funding. Simply put, businesses should understand the whole ecosystem of how it works. Knowing their facilities and processes can help them ensure that the business can identify any gaps and comprehend their broader credit risks.

The Federal Deposit Insurance Corporation (FDIC) is going to transfer all deposits (insured & uninsured) and assets of SVB to an all-new FDIC-operated ‘bridge bank’ envisioned to protect all depositors. The potential changes in banking laws are hard to be predicted.

Accountants need to wait patiently for some more time to understand how the rules will settle down and take shape. We will get back with more updates as the turmoil settles down.

About Julie Watson

Julie is a dynamic professional with over 16 years of rich experience as a VDI and Application Hosting expert. At Ace Cloud Hosting, she humanizes disruptive and emerging remote working trends to help leaders discover new and better possibilities for digital transformation and innovation by using cloud solutions with an enterprise-class security approach. Beyond work, Julie is a passionate surfer.
On the weekend, you will find her hanging out with her family or surfing around the North Shore of Oahu.

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