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. This sparked panic among tech investors and clients, who started to withdraw money from SVB, leading to a bank run. 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.
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. This arrangement had been great for SVB when things were great for the tech industry and not so great when they weren’t. But the bank was also very concentrated with high exposure to one industry, which opened it up to risk. When the situation deteriorated for the bank's homogeneous clientele, the bank itself soon suffered the consequences.
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.” 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.
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