Silicon Valley Bank Collapse Sparks Banking Industry Anxieties

The collapse of Silicon Valley Bank on Friday marked the largest bank failure in the United States since the Great Recession of 2008, and has sparked renewed anxieties across the banking industry.^[0] The bank had provided financing for almost half of all venture-backed technology and health care companies, and had a profile of large uninsured deposits, a tech-heavy customer base, and a portfolio of long-term government and mortgage securities.^[1]

In response to the outcry, the FDIC, Treasury Department, and the Federal Reserve took a major step on Sunday, declaring the bank failures a systematic risk and guaranteeing all of the bank’s depositors, including those with accounts over $250,000.^[2] California Gov. Gavin Newsom praised the Biden administration’s decision to intervene, but failed to mention his own ties to the now-defunct institution.^[3]

The Federal Reserve has been raising interest rates in an effort to tamp down the effects of high inflation, which had caused the value of SVB’s bonds to plummet.^[4] The bank had attempted to shore up its liquidity by selling a large portion of its assets at a loss, but this was not enough to save the institution.

The failure of SVB and Signature Bank has also sparked fears of other potential bank runs and failures, with many questioning if other banks are at risk.^[5] Treasury Secretary Janet Yellen sought to calm the public, saying the government was “focused on trying to meet the needs” of depositors. The Federal Reserve has announced a $25-billion backstop for the failing banks, as well as a one-year loan facility to try and limit contagion across the banking sector.^[6]

Overall, the collapse of Silicon Valley Bank has shaken the banking industry and prompted the government to take unprecedented steps to protect depositors.^[7]

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. “What's a bank run? The 10 moves that led to SVB's demise” CNN, 14 Mar. 2023, https://www.cnn.com/2023/03/14/business/bank-run-explained-svp-dg/index.html

2. “Silicon Valley Bank: How a digital bank run accelerated the collapse” ABC News, 14 Mar. 2023, https://abcnews.go.com/Business/silicon-valley-bank-digital-bank-run-accelerated-collapse/story?id=97846569

3. “Cheering Silicon Valley Bank Bailout, Gavin Newsom Doesn't Mention He's a Client” The Intercept, 14 Mar. 2023, https://theintercept.com/2023/03/14/cheering-silicon-valley-bank-bailout-gavin-newsom-doesnt-mention-hes-a-client/

4. “Bank collapse throws a chill over clean energy industry” POLITICO, 14 Mar. 2023, https://www.politico.com/news/2023/03/14/svb-implosion-climate-tech-on-edge-00086890

5. “Despite rescue, Seattle startups and banks face SVB blowback” The Seattle Times, 14 Mar. 2023, https://www.seattletimes.com/business/despite-rescue-seattle-startups-and-banks-face-svb-blowback/

6. “How Do Bank Rescues In India Fare Versus The U.S.?” BQ Prime, 14 Mar. 2023, https://www.bqprime.com/opinion/how-do-bank-rescues-in-india-fare-versus-the-us

7. “Silicon Valley Bank failure could wipe out ‘a whole generation of startups'” NPR, 11 Mar. 2023, https://www.npr.org/2023/03/11/1162805718/silicon-valley-bank-failure-startups