This analysis was first published in SvD Näringsliv, in Swedish, on March 10th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Silicon Valley Bank — an institution in the startup world — is being shaken by a crisis of confidence. Customers now fear a bank run, and the Stockholm Stock Exchange is falling.

Hope, as they say, is the last thing to abandon you.

“I would ask everyone to stay calm and support us just as we have supported you through difficult times.”

Those words were spoken by Greg Becker, CEO of Silicon Valley Bank, during a call with American venture capitalists on Thursday. The bank has since the 1980s been an institution in the tech world, and one of the few financial institutions that took on all the startups and unproven companies the big banks turned away.

It’s a moment that calls for keeping hope alive. SVB’s stock crashed a full 60 percent on Thursday. In after-hours trading it fell a further 66 percent before trading in the stock was finally halted. Reports now indicate that efforts to raise new capital are over, and SVB is instead looking for a buyer.

Greg Becker feels his bank deserves support from its customers now that the storm has well and truly broken around SVB. Instead, he received a considerable shove toward the abyss from the very customer base his bank has stood behind for over 40 years.

It all began when SVB surprised the market on Wednesday by announcing it would conduct a share issue and sell securities worth several billion dollars to shore up its balance sheet. Rising interest rates have made it more expensive to borrow money, and its customers — who are overwhelmingly tech companies — have been having an especially tough time.

A bank being perceived as unstable is never good.

But when its customers — including some of the most influential people in all of Silicon Valley — come out and warn against it, things get much worse very quickly.

Founders Fund, founded by venture capitalist Peter Thiel, immediately told its portfolio companies to withdraw their money from SVB. The incubator Y Combinator warned against keeping more at the bank than the deposit guarantee covers. Many others followed.

In Silicon Valley, this is the equivalent of people like Marcus Wallenberg and Christer Gardell jointly telling everyone to pull all their money out of a bank like Nordea. It creates enormous ripple effects that nobody is entirely immune to.

And the waves are already hitting companies.

SVB’s systems for processing transfers appear not to be functioning, blocking access to customer funds. A Swedish venture capitalist SvD spoke with said one of their portfolio companies currently cannot access its assets held at SVB. This comes just days after crypto bank Silvergate decided to wind itself down.

There are Swedish connections too. Last autumn, SVB opened an office in Stockholm, and Swedish occupational pension company Alecta owns around 4.5 percent of SVB — a holding that has already lost billions in value. The full extent of Swedish exposure is not yet clear, but Swedish bank stocks and stock markets broadly fell on Friday.

The market is therefore judging that the risks could spread — despite SVB being a relatively small and niche bank that isn’t particularly representative of the major banks in either the US or Sweden.

It’s worse for the tech sector, which now faces an extremely pressured situation.

The mere thought of a potential crisis is enough to trigger a bank run. If SVB were to collapse, it could wipe out hundreds — if not thousands — of smaller companies on its customer list. These are companies with both limited liquidity and limited financial expertise, and many have likely not diversified their capital at all. When the money runs out for a company — regardless of why — it’s also the end of the company itself.

The question now is whether SVB can survive this difficult situation without outside help. In all likelihood, all the major banks are looking at whether deals can be struck to increase stability. An acquisition or takeover, as occurred in the 2008 financial crisis, is a plausible scenario.

Silicon Valley Bank has — through its name if nothing else — been a hub at the center of the most dynamic industry of the past 20 years. The brand is strong. They have financed, lent to, and helped the companies the big banks consistently rejected.

One can understand why that feels ironic for CEO Greg Becker in a situation like this.

The bank that took on the risk for all these tech companies now finds itself shaking badly — not because the underlying companies are performing poorly.

But because its customers, the tech companies, have suddenly stopped trusting their own bank.