The collapse of Silicon Valley Bank (SVB) this month has sent shockwaves throughout the global tech sector — especially U.S. venture capital-backed science and tech firms, of which about half banked with SVB. This bank failure, which is the largest since the 2008 financial crisis, immediately caught the attention of federal regulators: the U.S. Treasury and the Federal Reserve quickly stepped in to make depositors whole over the weekend after SVB’s rapid collapse. The Fed also set up a temporary emergency funding plan called the Bank Term Funding Program to allow banks overinvested in bonds that have fallen in price – the vulnerability that brought SVB down – to deposit those assets at face value, protecting them from a similar rapid collapse.
The immediate consequences seem to have been mitigated, but many of the long-term effects of this crisis have yet to be felt or even determined. Much like the 2008 financial crisis – which created a major opening for Chinese firms to make valuable foreign investments and acquisitions in more advanced Western science and tech enterprises – the failure of SVB still constitutes a risk to the security of the U.S. tech sector, half of which now lacks sources of capital and a stable partner with whom to do business. The UK-based subsidiary of SVB has already been acquired by HSBC, which has a Beijing-backed enterprise as its largest shareholder.
There are various compelling arguments among scholars and practitioners about how best to engage in great power competition with respect to industrial policy, technology policy, foreign investment, and defense innovation. Whatever the best position on these issues might be, strong and sustainable policy in any of these areas is heavily reliant on the stability of U.S. financial markets and their attractiveness to firms and investors. With the collapse of SVB, it is likely that these debates will expand in focus to include considerations about U.S. financial security and private capital flow as another arena of great power competition.
Questions and Background
- What lessons should U.S. lawmakers take from the collapse of SVB to pursue a more cogent financial security strategy?
- How can the United States ensure that its “innovation base” of private-sector science and tech enterprises remains secure, stable, and competitive?
- In what ways can the U.S. federal government be more effective in ensuring that defense-critical firms, especially startups, have access to a reliable path to health (e.g. access to venture capital funding)?
SVB’s Collapse Is Sobering for US National Security, Too
Hal Brands. Bloomberg. March 17, 2023.
How deep is the rot in America’s banking industry?
The Economist. March 16, 2023.
The SVB Collapse Shows U.S. Vulnerabilities Amid Great Power Competition
Zongyuan Zoe Liu. Council on Foreign Relations. March 16, 2023.