The Collapse of Silicon Valley Bank: An Analysis of the Largest Bank Failure in US History
The collapse of Silicon Valley Bank (SVB) last week has sent shockwaves through financial and tech circles, creating the second-largest bank failure in US history. SVB was a publicly traded bank based in Santa Clara, California and was considered one of Silicon Valley’s most important banks, servicing over half of all venture-backed startups in the US.
The troubles began on March 8 when the bank reported a $1.8 billion loss from the sale of US treasuries and mortgage-backed securities and announced plans to raise $2.25 billion via a public offering.[0] This sparked panic among tech investors and clients, who started to withdraw money from SVB, leading to a bank run.[1] The Federal Deposit Insurance Corporation then took control of SVB and announced that all depositors, even those above the normal Federal Deposit Insurance Corp. limit of $250,000, would have access to all their money.[2]
SVB was particularly flexible about lending tech startups money, even though they didn’t have free cash flow or much in the way of assets.[2] This arrangement had been great for SVB when things were great for the tech industry and not so great when they weren’t.[3] But the bank was also very concentrated with high exposure to one industry, which opened it up to risk.[3] When the situation deteriorated for the bank's homogeneous clientele, the bank itself soon suffered the consequences.[3]
The US government is pushing back hard on the idea that this was a bailout, saying that “no losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”[4] But the collapse of SVB has shaken the tech industry, leading to a 75% plunge in First Republic Bank’s stock price, and has raised questions about the stability of the banking system.
0. “SVB Meltdown: What It Means for Cybersecurity Startups' Access to Capital” Dark Reading, 13 Mar. 2023, https://www.darkreading.com/risk/svb-meltdown-cybersec-startups-access-capital
1. “Signature Bank's collapse could deal a blow to cryptocurrency industry” The Washington Post, 13 Mar. 2023, https://www.washingtonpost.com/technology/2023/03/13/signature-bank-collapse-crypto/
2. “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/
3. “What is Silicon Valley Bank? The bank’s collapse, explained.” Vox.com, 12 Mar. 2023, https://www.vox.com/technology/23634433/silicon-valley-bank-collapse-silvergate-first-republic-fdic
4. “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
