California Regulators Shut Down Silicon Valley Bank: How and Why it Collapsed
On Friday, March 10, 2023, California regulators shut down Silicon Valley Bank (SVB), one of the largest banks in the US and the go-to lender for tech startups.[0] This marked the biggest bank failure in the country since the Great Recession and sent shockwaves through the global economy.[1]
SVB was founded in 1983 in Santa Clara, California, and quickly became the bank for the burgeoning tech sector.[2] It claimed to bank for nearly half of all US venture-backed startups as of 2021, and was also a banking partner for a lot of the venture capital firms that fund those startups.[3]
The bank’s collapse was largely attributed to a mismatch between assets and liabilities.[4] A sharp surge in deposits occurred, and these were largely invested in long-term bonds, particularly those which were government-guaranteed mortgage securities.[4] As the Federal Reserve began aggressively raising interest rates, funding sources for tech startups dried up, putting pressure on deposits, and at the same time, Fed rate hikes triggered a historic bond-market selloff, putting a big dent in the value of SVB’s securities holdings.[4]
On Thursday, the share price of SVB plummeted by 60%, resulting in a one-day mark-to-market profit of approximately $513 million for traders who had bet against the stock. This was due to increasing anxieties concerning the bank's operations.[5] Friday morning, the stock dropped another 63% prior to being stopped, and the Federal Deposit Insurance Corp. declared that it had taken control of the bank.[5] The bank announced a $1.8 billion loss Thursday following a $21 billion fire sale of its fixed-income portfolio.
The U.S. government declared that on Monday morning, all depositors at the failed Silicon Valley Bank would be able to access their funds.[6] The announcement seemed to involve deposits of greater value than the maximum $250,000 that is federally insured.[7] More than 90 percent of the bank’s customers had account balances above this.[8]
The FDIC said that depositors will have access to all of their money starting Monday, March 13.[9] No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.[6]
As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets.[10] Despite skeins of bank regulations meant to prevent another financial meltdown, Silicon Valley Bank went down in flames last week, and its failure has prompted a lot of finger-pointing.[11]
0. “Yellen rules out bailout for Silicon Valley Bank: “We're not going to do that again”” CBS News, 12 Mar. 2023, https://www.cbsnews.com/news/janet-yellen-silicon-valley-bank-bailout-face-the-nation-interview-today-2023-03-12/
1. “My Trade Amid SVB's Fall? An ‘Insurance Policy' on BofA I Hope Doesn't Pay Off” RealMoney, 12 Mar. 2023, https://realmoney.thestreet.com/investing/stocks/my-bank-trade-an-insurance-policy-on-bofa-i-hope-doesn-t-pay-off-16118056
2. “Space sector reacts to collapse of Silicon Valley Bank” SpaceNews, 10 Mar. 2023, https://spacenews.com/space-sector-reacts-to-collapse-of-silicon-valley-bank/
3. “Silicon Valley Bank failure could wipe out ‘a whole generation of startups'” NPR, 11 Mar. 2023, https://www.npr.org/2023/03/11/1162805718/silicon-valley-bank-failure-startups
4. “What a rescue for SVB depositors means for the stock market and interest rates” MarketWatch, 12 Mar. 2023, https://www.marketwatch.com/story/svb-collapse-means-more-stock-market-volatility-what-investors-need-to-know-b87c962b
5. “SVB Collapse Has Short Sellers Making $500M, Now they Have to Collect” Bloomberg, 10 Mar. 2023, https://www.bloomberg.com/news/articles/2023-03-10/shorts-make-500-million-on-svb-demise-collecting-won-t-be-easy
6. “Silicon Valley Bank collapse: Everything that’s happened until now” Cointelegraph, 13 Mar. 2023, https://cointelegraph.com/news/silicon-valley-bank-collapse-everything-that-s-happened-until-now
7. “Treasury Secretary Janet Yellen says U.S. government won't bail out Silicon Valley Bank” CNBC, 12 Mar. 2023, https://www.cnbc.com/2023/03/12/treasury-secretary-janet-yellen-says-us-government-wont-bail-out-silicon-valley-bank.html
8. “Silicon Valley Bank CEO should return millions in company stock he sold, lawmakers say” The Washington Post, 12 Mar. 2023, https://www.washingtonpost.com/technology/2023/03/12/greg-becker-svb-stock/
9. “Mark Cuban urges Fed to buy Silicon Valley Bank debt ‘immediately,’ says it’s ‘not the wealthy taking the hit’” Fortune, 11 Mar. 2023, https://fortune.com/2023/03/11/mark-cuban-fed-buy-silicon-valley-bank-debt-immediately-not-wealthy-taking-hit/
10. “PR-16-2023 3/10/2023” FDIC, 13 Mar. 2023, https://www.fdic.gov/news/press-releases/2023/pr23016.html
11. “Silicon Valley Bank had more red flags than a CCP meeting but regulators cared about climate not bank risks” Fox Business, 13 Mar. 2023, https://www.foxbusiness.com/markets/silicon-valley-bank-red-flags-ccp-meeting-regulators-cared-climate-bank-risks
