Silicon Valley Bank Collapse: How it Happened and What to Know Now
Silicon Valley Bank, a top-20 bank in the US by asset size, suddenly collapsed last week, leaving a huge impact on the tech world.[0] With its close ties to venture capital firms, the bank had been a major lender to tech startups and other businesses in the Bay Area.[1]
In the span of just two days between March 8th and 9th, SVB faced a bank run and was taken over by the Federal Deposit Insurance Corporation (FDIC).[2] It was the second-largest bank failure in US history, leaving many depositors with amounts in excess of the $250,000 FDIC-insured limit out of luck.[3]
What made SVB so vulnerable to collapse? First, the bank had a huge concentration of deposits from one industry. Second, many of its clients had large accounts that weren’t covered by FDIC insurance. And third, it had an unusually high ratio of securities with unrealized losses relative to its total capital.[1]
The federal government stepped in on Sunday night to prevent a bank run on other small and medium-sized banks, but the problem still isn’t resolved. The Treasury and the Federal Reserve coordinated to make a new facility called the Bank Term Funding Program (BTFP), which lets banks use various securities at face value for loan collateral.[3]
Anyone dealing with Silicon Valley Bank should be wary of the potential risks.[4] The FDIC has taken control of the bank and will pay uninsured depositors an “advance dividend within the next week.” But for now, it’s unclear what will happen with the bank’s assets and its customers’ money in the long term.
0. “How does a bank collapse in 48 hours? A timeline of the SVB fall” CNN, 13 Mar. 2023, https://www.cnn.com/2023/03/11/business/svb-bank-collapse-explainer-timeline/index.html
1. “March 2023 Newsletter: A Look at Bank Solvency” Lyn Alden, 13 Mar. 2023, https://www.lynalden.com/march-2023-newsletter/
2. “Silicon Valley Bank's failure, the government's depositor rescue, and venture capitalists' incredible tantrum.” Slate, 13 Mar. 2023, https://slate.com/technology/2023/03/silicon-valley-bank-rescue-venture-capital-calacanis-sacks-ackman-tantrum.html
3. “A bailout or not? Did the federal government bailout Silicon Valley Bank and Signature Bank?” ABC News, 16 Mar. 2023, https://abcnews.go.com/Business/bailout-federal-government-bailout-silicon-valley-bank-signature/story?id=97846142
4. “Elon Musk says he's ‘open to the idea' of buying Silicon Valley Bank after its collapse — but is he really serious? Here are 3 other ways to bet alongside the billionaire” Yahoo Life, 16 Mar. 2023, https://www.yahoo.com/lifestyle/elon-musk-just-said-hes-133500538.html
