Silicon Valley Bank Collapses: Second Largest U.S. Bank Failure in History
Silicon Valley Bank (SVB) has been a pillar of the tech industry since its foundation in 1983.[0] However, the bank abruptly collapsed on Friday, March 10, 2023, and was taken over by federal regulators. This marks the second-largest U.S. bank failure in history, only behind Washington Mutual’s $300 billion collapse in the 2008 financial crisis.[1]
The bank’s fall began with a dramatic decline in its stock price on Thursday after SVB revealed it had taken a $1.8 billion loss on bond sales in Q1 and was seeking to raise additional capital. This prompted a bank run by depositors, who began to panic about the companies’ ability to get their money out.[2] To make up for the losses, SVB planned to raise $2.25 billion, but it was unable to do so.[3]
The majority of SVB’s client base was composed of venture capitalists and startups, many of whom had millions or even hundreds of millions of dollars deposited at the bank.[4] Unfortunately, FDIC deposit insurance is only available up to $250,000, so more than 85% of the deposits were uninsured.[5]
SVB’s downfall had everything to do with its investment strategy of focusing on venture capital and private equity, as well as its lack of diversification. The bank catered to the tech industry during its booming years and was unable to adjust when the pandemic hit.[6] High interest rates also eroded the value of long-term bonds, which created billions of dollars in paper losses for the bank.
The FDIC said insured depositors will have full access to their deposits up to $250,000 by Monday morning, March 13, 2023.[7] Uninsured depositors will receive an “advance dividend within the next week.”[7] The collapse of SVB leaves a gaping hole in the financial infrastructure of the tech industry, as well as a lot of uncertainty for startups and venture capitalists.
0. “Opinion | Silicon Valley Bank’s collapse reflects the tech sector’s deep anxiety” The Washington Post, 11 Mar. 2023, https://www.washingtonpost.com/opinions/2023/03/10/silicon-valley-bank-collapse-tech-sector/
1. “‘This hit like a ton of bricks': Troubles at Silicon Valley Bank ripple across Boston tech scene” The Boston Globe, 11 Mar. 2023, https://www.bostonglobe.com/2023/03/10/business/troubles-silicon-valley-bank-ripple-across-boston-tech-scene
2. “Silicon Valley Bank Collapse Leaves Tech Industry Scrambling For Answers” Crunchbase News, 10 Mar. 2023, https://news.crunchbase.com/venture/silicon-valley-bank-impact/
3. “Why the SVB-Triggered Selloff Is a Buying Opportunity in Big Bank Stocks” Barron's, 10 Mar. 2023, https://www.barrons.com/articles/bank-stock-buy-svb-52ee8b9e
4. “Most of Silicon Valley Bank's Deposits Were Uninsured” TIME, 10 Mar. 2023, https://time.com/6262009/silicon-valley-bank-deposit-insurance/
5. “SVB’s 44-Hour Collapse Was Rooted in Treasury Bets During Pandemic” Yahoo News, 11 Mar. 2023, https://news.yahoo.com/svb-spectacularly-fails-unthinkable-heresy-222710493.html
6. “What is Silicon Valley Bank? The bank’s collapse, explained.” Vox.com, 10 Mar. 2023, https://www.vox.com/technology/23634433/silicon-valley-bank-collapse-silvergate-first-republic-fdic
7. “How does a bank collapse in 48 hours? A timeline of the SVB fall” CNN, 11 Mar. 2023, https://www.cnn.com/2023/03/11/business/svb-bank-collapse-explainer-timeline/index.html
