Silvergate Capital and Silicon Valley Bank plummet

Welcome back. Time for today's Tech Check and a look at the crypto banks. Let's send it over to Deirdre Bosun. Hey, De. Hey, Carl. I'm going to look at two banks here because they're both getting crushed this morning. The first one you were referring to, Silvergate Capital, it's massive bet on crypto continues to unravel.

And the other one is Silicon Valley Bank, which is very much tied to the tech startup ecosystem. Let me get into the first Silvergate Capital. As you can see, shares are down another 20 percent today. As it says, it'll shut down amid the route in crypto and fall out at some of its highest profile customers. What is different about Silvergate, though, than, say, an FTX or a Genesis is that Silvergate is not a crypto-native company. This is a traditional FDIC-insured mainstream bank that made a huge bet on crypto. And when the winter hit, it sparked a run that forced it to sell assets at a loss to cover withdrawals.

With its liquidation, the crypto ecosystem, well, it loses the so-called rails or the infrastructure that connected the traditional financial system, the real-world financial system, to the crypto, the digital sector. So that further separation has hit Bitcoin as well, perhaps ironically. Remember, this is supposed to be a decentralized currency. But what this shows us is that part of its proposition is tied to its integration with traditional finance. The other one I want to talk about, Silicon Valley Bank, I know you guys have been watching this as well. This is a bank at the heart of the venture capital ecosystem, falling 40 percent today on worries about that ecosystem. So as startups raise less money and burn through it faster, SVB feels that in its deposit growth.

Here's Greg Becker, the CEO of SVB, a few weeks ago on Tech Check. What we are expecting to see in 23, first half, actually, in venture capital, actually a little bit more of a decline, even though what we saw in the fourth quarter. But the second half was going to kind of create that modest improvement and really set the stage for a better 24. So we're optimistic because our crystal ball is a little clearer than it was in the third quarter last year. But maybe not clear enough. In its mid-quarter update yesterday, the bank said that client cash burn remains about two times higher than pre-2021 levels, and it has not adjusted to the slower fundraising environment. As a result, the bank announced plans to sell more than $2 billion in shares to shore up its capital base.

Some could argue, though, guys, this is a stock that's down 40 percent. And you could argue that it's a little overdone today. Just 3 percent of total loans are to the earliest-stage companies, and the majority are capital call lines that private equity and venture capital investors can draw on before they get cash from LP. So it is a very big move. It's down about 70 percent in the last 12 months, alongside the frozen IPO market and this tough fundraising and cash burn environment for startups.

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