Silicon Valley Bank Collapse: A Stark Reminder of the Risks of Putting All Your Eggs in One Basket
The collapse of Silicon Valley Bank (SVB) on Friday, March 12, 2023, has become the largest bank failure in US history since the 2008 financial crisis.[0] SVB was the “financial partner of the innovation economy,” catering to nearly half of all US venture-backed startups and working closely with venture capital firms.[1] It was a publicly traded bank based in Santa Clara, California, and had around $209 billion in total assets at the end of December.[2]
The collapse was caused by a sudden, swift bank run after SVB, the parent company of Silicon Valley Bank, announced it was selling $21 billion of assets at a $1.8 billion loss.[3] This sparked panic among tech investors, who encouraged startups to withdraw their money, prompting a bank run.[2] Following a sharp drop in SVB's stock price, trading was suspended and the bank was shut down by authorities.[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.[4] It also offered lines of credit, which allowed startups to cover dips in cash flow.[4] SVB had more than $200 billion in assets when it failed, and 97 percent of its deposits were uninsured.[5]
The failure of Silicon Valley Bank has sparked debate about the role of the Federal Deposit Insurance Corporation (FDIC) in such a situation. The Biden administration made an unprecedented move, guaranteeing that all depositors at the collapsed Silicon Valley Bank would be able to gain access to their entire funds.[2] Had the Dodd-Frank regulations that SVB fought against been in place, it may have been possible to identify the bank's pitfalls sooner.[5]
The bank’s collapse also raises questions about the role of the FDIC in such a situation. Is this a financial rescue?[2] While the FDIC is providing a safety net for depositors, it is also an insurer of last resort, and some are questioning whether this is the best use of taxpayer money.
The collapse of Silicon Valley Bank serves as a stark reminder of the importance of diversification and the risks associated with putting all your eggs in one basket. It is also a reminder of the need to pay attention to the banking sector and to ensure that banks are properly regulated and managed.
0. “The tech industry avoided an ‘extinction-level event,' but it's not unscathed” CNN, 13 Mar. 2023, https://www.cnn.com/2023/03/13/tech/tech-industry-relief-silicon-valley-bank/index.html
1. “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
2. “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/
3. “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
4. “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/
5. “Trump-era banking law paved way for Silicon Valley Bank’s collapse” Vox.com, 13 Mar. 2023, https://www.vox.com/business-and-finance/2023/3/13/23638655/silicon-valley-bank-trump-fdic-banking-law
