By Geoffrey Smith 

-- Not many in financial markets expected Friday to be dominated by a mid-sized West Coast bank rather than the U.S. jobs report for February, and even fewer feel good about it being so.

Shares in SVB Financial Group (NASDAQ:) - also known as Silicon Valley Bank - fell 60% on Thursday and another 21% after hours, after it announced an emergency $2.25 billion capital raise to cover expected losses. Those losses have been triggered by a sharp run on its deposit base by clients who are running out of money.

The news was enough to send shockwaves through the whole U.S. banking sector, with even stalwarts such as JPMorgan (NYSE:) and (NYSE:) stocks falling by over 5%. The index fell 6.5% to its lowest in five months, while the index fell 4.1%.

SVB's clients are disproportionately made up of technology startups, who for the last decade have largely been able to raise all the money they need from venture capitalists. However, the torrent of VC cash eased up in 2022, falling by more than one-third from 2021's record level of $329B, according to data from EY. SVB expects it to fall to $120-140B this year.

With venture capital harder to come by, SVB's clients are now running down their bank deposits. SVB has had to liquidate a big chunk of its securities portfolio to meet their demand for cash, and because bond prices have fallen sharply as the Federal Reserve has raised over the last year, SVB's bond sales have crystallized a loss of around $1.8B. Hence the need for $2.25B in fresh capital.

SVB's story has some superficial similarities to that of Silvergate Capital (NYSE:), which shut its doors and went into liquidation earlier this week after making catastrophic losses on its own firesale of bonds. But Silvergate's client base of crypto exchanges and investment platforms occupies a much smaller niche in the U.S. financial universe. By contrast, SVB's client base is a microcosm of a sector that has huge, economy-wide significance, and that has absorbed vast amounts of investment capital for a decade, often at valuations that have borne little relation to reality.

In other words, if SVB's client base is in trouble, then so - to a lesser, but proportionate degree - is the client base of much of the U.S. banking industry.

As a series of high-profile layoffs by Big Tech has proved in recent months, that sector is now struggling more than most. Challenger's survey for February, released on Thursday, showed that technology shed twice as many jobs as the second-worst-performing sector, retail.

SVB itself downplayed the problems of its clients. It said that early-stage loans, the riskiest part of its portfolio, account for only 3% of assets and that the lower-risk part of its loan book has grown in importance in recent years. But around one-quarter of its total loan book is to startups. Another 14% is loans to "innovation economy influencers" and high-net-worth individuals.

"The vast majority of our assets are in high-quality, government and agency securities and low-creditloss lending activities," it said. "We've demonstrated strong credit performance throughout cycles, and the risk profile of our loan portfolio has significantly improved over time."

But SVB is more exposed to deposit runs than a normal Main Street bank, in that its deposit base is almost entirely corporate, and corporate treasurers are typically much quicker than individuals to pull their funds in search of higher interest elsewhere. Around half of SVB's deposit base is non-interest-bearing demand deposits, which can be pulled at the touch of a button.

The shockwaves reverberated around global markets in early Friday trading, with the down over 3% in Hong Kong and the down 2% in the first half hour of trading.