Silicon Valley Bank Collapses in Largest Bank Failure Since 2008
On Friday, Silicon Valley Bank, a key lender for the tech industry, collapsed after 48 hours of chaos and became the second-largest bank failure in US history. The Federal Deposit Insurance Corporation (FDIC) shut down the bank, citing a “catastrophic bank run” and liquidity issues. The collapse of Silicon Valley Bank is the largest bank failure since the 2008 financial crisis and the second-largest in US history.
The roots of SVB's collapse stem from dislocations spurred by higher interest rates.[0] With startups taking money out of their accounts in order to maintain their businesses in a difficult market for IPOs and private funding, SVB found itself in a position of lacking capital.[0] It had to sell its available-for-sale bonds at a $1.8 billion loss, the bank said late Wednesday.[0]
When a bank like SVB fails, large depositors may only get pennies on the dollar back once other creditors are satisfied, as FDIC insurance only covers deposits up to $250,000.[1] The Biden administration has emphasized that “no losses will be borne by the taxpayers” related to the government’s intervention for Silicon Valley Bank.[2] However, some are already skeptical of that statement.[3]
SVB’s assets are now under the control of the FDIC.[4] Customers will have access to their insured deposits on Monday, but FDIC insurance tops out at $250,000.[2] In a move to bolster confidence in the financial system, the Fed has said it will make available funding to other banks to help assure they can meet the needs of all their depositors.[5] The Treasury Department, Federal Reserve and FDIC also announced that all depositors of Silicon Valley Bank would “have access to all of their money starting Monday”.[6]
The collapse of Silicon Valley Bank has sent shockwaves through the tech industry and left many startups scrambling.[6] Elon Musk responded to a tweet that said, “Twitter should buy SVB and become a digital bank” on Friday, tweeting that he was “open to the idea”.[7] However, no further information has been provided.[7]
Ultimately, Silicon Valley Bank failed because it made some bad business bets.[1] The deposits were invested in long-term assets, such as Treasury bonds.[8] When the Federal Reserve increased interest rates, investments depreciated in value, while simultaneously squeezing many of the depositors.[8] The result was a bank run.[8]
0. “Here's how the second-biggest bank collapse in U.S. history happened in just 48 hours” CNBC, 10 Mar. 2023, https://www.cnbc.com/2023/03/10/silicon-valley-bank-collapse-how-it-happened.html
1. “SVB's Depositors Were Bailed Out. Why It's the Right Move.” Barron's, 13 Mar. 2023, https://www.barrons.com/articles/svb-depositors-bailout-fdic-fed-db7cfda0
2. “With Silicon Valley Bank depositors protected, let the bailout debate begin” Axios, 13 Mar. 2023, https://www.axios.com/2023/03/13/let-the-bailout-debate-begin-silicon-valley-bank-fdic
3. “The tech industry avoided an ‘extinction-level event,' but it's not unscathed” CNN, 13 Mar. 2023, https://www.cnn.com/2023/03/13/tech/tech-industry-relief-silicon-valley-bank/index.html
4. “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/
5. “Treasury, regulators unveil bank rescue plan to stem crisis” POLITICO, 13 Mar. 2023, https://www.politico.com/news/2023/03/12/fdic-holds-auction-for-svb-amid-growing-uncertainty-00086696
6. “Fallout from Silicon Valley Bank collapse to dominate Capitol Hill” The Hill, 13 Mar. 2023, https://thehill.com/homenews/senate/3896695-fallout-from-silicon-valley-bank-collapse-to-dominate-capitol-hill/
7. “Elon Musk just said he's ‘open to the idea' of buying Silicon Valley Bank after its collapse — but is he serious? Here are …” Yahoo Sports, 13 Mar. 2023, https://sports.yahoo.com/elon-musk-just-said-hes-133500538.html
8. “Republicans Have Found a Culprit for SVB’s Collapse” The Atlantic, 13 Mar. 2023, https://www.theatlantic.com/ideas/archive/2023/03/republicans-svb-collapse-wokeness-esg-dei/673378/
