Silicon Valley Bank Collapse: What You Need to Know
On Friday, Silicon Valley Bank (SVB) experienced a catastrophic failure when it was shut down by the California Department of Financial Protection and Innovation and the FDIC was appointed as the receiver.[0] This was the result of a sudden bank run and capital crisis that started on Wednesday, when SVB announced that it needed to raise billions in capital to cover losses.[1] Investors and tech founders, already on edge due to the general slowdown in venture capital, panicked and SVB’s shares fell by around 60% in Thursday trading, and another 20% in aftermarket trading.[2]
Treasury Secretary Janet Yellen made it clear on Sunday that there would be no federal bailout for SVB’s investors, but that the government was “concerned” about the impact to depositors and is “working to address their needs.”[3] The FDIC said that all insured depositors will have full access to their insured deposits no later than Monday, and that it would pay uninsured depositors an “advance dividend within the next week.”[4]
The collapse of SVB had its roots in the Federal Reserve’s aggressive interest rate hikes, which had caused the prices of bonds to fall. The bank had invested much of its deposits in Treasury bonds that don’t mature for years.[5] To make good on withdrawals, the bank had to sell part of its bond holdings at a steep loss of $1.8 billion.[6]
SVB’s downfall was also due to a highly leveraged lending culture, with many of its customers keeping far greater uninsured deposits than the FDIC limit of $250,000. This has caused a great deal of uncertainty for companies that relied on SVB’s financial products and services, such as revolver loans and credit cards.
The FDIC is now in control of SVB’s assets and is working to liquidate them to pay back depositors and creditors.[7] But the fate of those with deposits at SVB that exceed insurance limits is still uncertain, as they will receive an “advance dividend” for a portion of their funds along with “certificates” accounting for their uninsured funds.[6]
The collapse of Silicon Valley Bank is a reminder that, even though the American banking system is “safe and well-capitalized”, banks can still fail and cause contagion that affects other sound financial institutions.[8]
0. “Federal bailout for Silicon Valley Bank off the table, Yellen says” POLITICO, 12 Mar. 2023, https://www.politico.com/news/2023/03/12/bailout-silicon-valley-bank-yellen-00086673
1. “Silicon Valley Bank had no official chief risk officer for 8 months while the VC market was spiraling” Fortune, 10 Mar. 2023, https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer
2. “SVB Collapse Has Short Sellers Making $500M, Now they Have to Collect” Bloomberg, 10 Mar. 2023, https://www.bloomberg.com/news/articles/2023-03-10/shorts-make-500-million-on-svb-demise-collecting-won-t-be-easy
3. “Yellen rules out bailout for Silicon Valley Bank: “We're not going to do that again”” CBS News, 12 Mar. 2023, https://www.cbsnews.com/news/janet-yellen-silicon-valley-bank-bailout-face-the-nation-interview-today-2023-03-12/
4. “PR-16-2023 3/10/2023” FDIC, 10 Mar. 2023, https://www.fdic.gov/news/press-releases/2023/pr23016.html
5. “‘This hit like a ton of bricks': Troubles at Silicon Valley Bank ripple across Boston tech scene” The Boston Globe, 10 Mar. 2023, https://www.bostonglobe.com/2023/03/10/business/troubles-silicon-valley-bank-ripple-across-boston-tech-scene
6. “What to know about the spectacular collapse of Silicon Valley Bank” NPR, 10 Mar. 2023, https://www.npr.org/2023/03/10/1162599556/silicon-valley-bank-collapse-failure-fdic-regulators-run-on-bank
7. “Mark Cuban urges Fed to buy Silicon Valley Bank debt ‘immediately,’ says it’s ‘not the wealthy taking the hit’” Fortune, 11 Mar. 2023, https://fortune.com/2023/03/11/mark-cuban-fed-buy-silicon-valley-bank-debt-immediately-not-wealthy-taking-hit/
8. “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
