As investors started to remove their assets, shares of Silicon Valley Bank (SVB), a significant lender to technology start-ups, fell sharply on Thursday.
The bank declared a $1.75 billion (£1.5 billion) share sale to help shore up its finances, which prompted the decline.
The value of the four biggest US banks, including JP Morgan and Wells Fargo, has decreased by more than $50 billion. Shares of banks have dropped globally.
Venture investor described the day’s events as “wild” and “brutal” to the BBC.
Asian bank equities were also trading lower on Friday.
SVB stock experienced its largest one-day decline ever as it fell more than 60% and lost an additional 20% in after-hours trading.
The company started the share offering after suffering a loss of about $1.8 billion when it sold a portfolio of assets, mostly US Treasury bonds.
However, what worries the bank more is that some start-ups with money placed have been told to withdraw money.
The scenario is “wild,” Blank Ventures founder Hannah Chelkowski told the BBC. Blank Ventures is a fund that invests in financial technology. She is telling the businesses in her portfolio to stop investing.
“It’s crazy how it just gets unravelled like that… The interesting thing is that it’s the most start-up-friendly bank and has been supportive of start-ups so much through Covid. Now VCs are asking their portfolio companies to withdraw their funds,” she said.
It is cruel, she continued.
SVB, a significant early-stage lender, is the banking partner for almost half of the US venture-backed technology and healthcare firms that went public last year.
An inquiry for additional comment from the BBC was not quickly answered by SVB.
Concerns about the value of bonds held by banks in the larger market arose from the fact that those bonds lost value due to increasing interest rates.
In an effort to reduce inflation, central banks around the globe, including the US Federal Reserve and the Bank of England, have sharply raised interest rates.
Banks frequently have sizable bond portfolios, which means they are sitting on sizable possible losses. Unless banks are forced to sell them, value drops in bonds they hold are not inherently a problem.
However, if institutions like Silicon Valley Bank are forced to sell the bonds they own at a loss, it might have an effect on their bottom line.
According to Constellation Research creator and CEO Ray Wang, the banks are suffering as a result of the increase in interest rates, as reported by the BBC.
“Neither Silicon Valley Bank employees nor people elsewhere anticipated that these interest rate increases would last this long. That, in my opinion, is what actually transpired. They placed the incorrect wager,” he continued.