The Collapse of Silicon Valley Bank: How it Happened and What it Means
Silicon Valley Bank, one of the largest banks in the United States by asset size, collapsed in just a two-day stretch between March 8th and March 9th, 2023. Its CEO was also a board member of the Federal Reserve Bank of San Francisco, one of the twelve “bankers’ banks” that make up the Federal Reserve System.[0] The bank, which specialized in meeting the credit needs of technology startup companies and venture capital firms, faced a bank run and was taken over by the U.S. Federal Deposit Insurance Corporation.[1]
SVB had nearly $210 billion in assets and provided banking services to about half of U.S. startups at the start of the year.[2] Its fall has been linked to large unrealized losses on government securities, which became a problem when the Federal Reserve raised interest rates and the value of securities dropped.[3]
The collapse of Silicon Valley Bank is the second-largest bank failure in U.S. history and it has created a lot of discussion and finger-pointing in the tech industry. Many experts say the bank got into trouble because of its specialization in meeting the credit needs of technology startups and venture capital firms, which caused it to take on too much risk. SVB was also providing low-rate loans and lines of credit to early-stage tech and life sciences companies, and it had large amounts of uninsured deposits above the $250,000 FDIC limit.
The bank's collapse has highlighted the instability and risk associated with the startup ecosystem and venture capital apparatus. Without some serious accounting about Silicon Valley's culture and the tech industry's role in SVB's collapse, there is a fear that something similar could happen again.[2]
In the midst of the chaos, large banks are in better financial shape than small banks, and are poised to take some market share from them.[4] Banks in general are also being warned to be more prudent in their investments, as the Silicon Valley Bank collapse has shown the dangers of taking on too much risk.[3]
0. “March 2023 Newsletter: A Look at Bank Solvency” Lyn Alden, 13 Mar. 2023, https://www.lynalden.com/march-2023-newsletter/
1. “The Hideous Double Standards of the Silicon Valley Bank Bailout: Bailouts for Me, Not for Thee | Opinion” Newsweek, 16 Mar. 2023, https://www.newsweek.com/hideous-double-standards-silicon-valley-bank-bailout-bailouts-me-not-thee-opinion-1788339
2. “Silicon Valley was already reeling before its favorite bank collapsed” Yahoo News, 16 Mar. 2023, https://news.yahoo.com/silicon-valley-was-already-reeling-before-its-favorite-bank-collapsed-204643748.html
3. “What to Know About Trump-Era Bank Deregulation and Bank Failures” FactCheck.org, 16 Mar. 2023, https://www.factcheck.org/2023/03/what-to-know-about-trump-era-bank-deregulation-and-bank-failures/
4. “Government fear-mongering over Silicon Valley Bank — and how to profit” New York Post , 15 Mar. 2023, https://nypost.com/2023/03/15/government-fear-mongering-over-silicon-valley-bank-and-how-to-profit/
