Silicon Valley Bank Collapses in Bank Run
Silicon Valley Bank, founded in 1983 and specializing in banking for tech startups, faced a bank run and collapse on March 8, 2023.[0] The parent company, SVB Financial Group, announced it had sold $21 billion of assets at a $1.8 billion loss and was going to sell $1.75 billion worth of shares to help plug that hole.[1] This announcement caused a panic amongst key venture capitalists, who advised their companies to withdraw their money from the bank.[1]
The bank held a total of $74 billion in loans, of which almost half – $34 billion – went to borrowers who used the money to buy or carry securities of their own.[2] SVB was a top-20 bank in the United States by asset size, and a large percentage of venture capital backed startups in the country had a connection with them.[3]
The pandemic bull run had inflated the value of tech startups and the funds of investors, resulting in a tripling of deposits at the regional bank from $62 billion at the end of 2019 to $189 billion at the end of 2021.[4] SVB desired to invest the money, so it acquired U.S. Treasury and mortgage bonds that would not mature for several years but offer a relatively secure place to deposit the money- so long as interest rates did not grow.[4] Multiple times, they did rise.[4]
SVB was highly concentrated in its business and catered to venture capital and private equity, so when things got bad for its non-diversified group of clients, it very quickly got bad for the bank.[5] Depositors tried to withdraw $42 billion, rendering the financial institution insolvent.[4] The Federal Deposit Insurance Corporation (FDIC) stepped in to offer insurance coverage up to a certain limit per depositor, per bank, for each account ownership category.[6]
In addition, the FDIC functions as the “receiver” of a failed bank, responsible for selling off the bank's assets and settling its debts, including any deposits that exceed the insured limit.[6] The American government also announced the close of New York-based Signature Bank and offered a $25-billion backstop for the failing banks to pay their depositors.[7]
0. “March 2023 Newsletter: A Look at Bank Solvency” Lyn Alden, 13 Mar. 2023, https://www.lynalden.com/march-2023-newsletter/
1. “How does a bank collapse in 48 hours? A timeline of the SVB fall” CNN, 13 Mar. 2023, https://www.cnn.com/2023/03/11/business/svb-bank-collapse-explainer-timeline/index.html
2. “The uncommon lending practices behind Silicon Valley Bank’s woes” CNBC, 16 Mar. 2023, https://www.cnbc.com/2023/03/16/the-uncommon-lending-practices-behind-silicon-valley-banks-woes.html
3. “Easy Loans, Great Service: Why Silicon Valley Loved Silicon Valley Bank” The Wall Street Journal, 16 Mar. 2023, https://www.wsj.com/articles/easy-loans-great-service-why-silicon-valley-loved-silicon-valley-bank-6b3f203e
4. “Silicon Valley Bank's failure, the government's depositor rescue, and venture capitalists' incredible tantrum.” Slate, 13 Mar. 2023, https://slate.com/technology/2023/03/silicon-valley-bank-rescue-venture-capital-calacanis-sacks-ackman-tantrum.html
5. “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
6. “Bank failures aren’t as uncommon as you think. Here’s what happens when a bank fails and how to know if your money is safe” Fortune, 13 Mar. 2023, https://fortune.com/recommends/banking/what-happens-when-a-bank-fails
7. “How Do Bank Rescues In India Fare Versus The U.S.?” BQ Prime, 14 Mar. 2023, https://www.bqprime.com/opinion/how-do-bank-rescues-in-india-fare-versus-the-us
