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On Friday, March 10, 2023, after the Silicon Valley Bank (SVB) suddenly shut down, leading many companies scrambling to figure out how to manage their finances, the collapse of the SVB caused shockwaves around the world. The chief economist for Moody’s Analytics, Mark Zandi, said, “Silicon Valley Bank failed largely because of its links to the tech industry, because tech is getting nailed by all the rise in interest rates, and changes in consumer preferences.”

For more details about the Collapse of Silicon Valley Bank, please refer to the excerpt from wikipedia, in italics, below:

On March 10, 2023, Silicon Valley Bank (SVB) failed after a bank run, causing the largest bank failure since the 2008 financial crisis and the second-largest in U.S. history.^[1] The collapse of SVB has had a significant impact on startups, with many unable to retrieve money from the bank. Other large technology companies, media, and wineries were also impacted.

During the COVID-19 pandemic, the tech sector experienced a period of growth. Capitalizing on an increase in deposits in 2021, SVB purchased long-term Treasury bonds. The value of these bonds decreased as interest rates rose during the 2021–2023 inflation surge. To recoup its losses, on March 8, SVB announced that it had sold over US$21 billion worth of investments, borrowed US$15 billion, and would hold an emergency sale of its stock to raise US$2.25 billion. The announcement caused a bank run as customers withdrew funds totaling US$42 billion by the following day.

On the morning of March 10, 2023, the California Department of Financial Protection and Innovation (DFPI) issued an order taking possession of SVB, placing it under control of the Federal Deposit Insurance Corporation (FDIC). The FDIC established a bridge bank, the Deposit Insurance National Bank of Santa Clara, to service insured deposits and announced that it would start paying dividends for uninsured deposits the following week. Some 89 percent of the bank’s US$172 billion in deposit liabilities exceeded the maximum insured by the FDIC.^[2][3]

Background

SVB was a commercial bank founded in 1983 and headquartered in Santa Clara, California. Until its collapse, SVB was the 16th largest bank in the United States, and was heavily skewed toward serving companies and individuals from the technology industry.^[4][5][6] Nearly half of U.S. venture capital-backed healthcare and technology companies were financed by SVB.^[7] Companies such as Airbnb, Cisco, Fitbit, Pinterest, and Block, Inc. have been clients of the bank.^[8] In addition to financing venture-backed companies, SVB was well known as a source of private banking, personal credit lines, and mortgages to tech entrepreneurs.^[9] Silicon Valley Bank required an exclusive relationship of those borrowing from the bank.^[10] Prior to March 9, 2023, SVB was in “sound financial condition,” according to the California Department of Financial Protection and Innovation,^[11] though an increased number of short sellers began to target SVB earlier in the year.^[12][13] Employees received their annual bonuses on March 10, 2023, hours before the government took control of the company.^[14]

As of the last call report of the bank, filed on December 31, 2022, it held $209 billion in total assets, with $175.5 billion in total deposits, of which the bank estimated $151.6 billion (86.4 percent) were uninsured.^[15]

Collapse

Losses

The bank’s deposits increased from $62 billion in March 2020 to $124 billion in March 2021, benefiting from the impact of the COVID-19 pandemic on science and technology. Most of these deposits were invested in long-term Treasury bonds as the bank sought a higher return on investment than were available on shorter-term bonds.^[16] These long-term bonds fell in value as interest rates rose during the 2021–2023 inflation surge and they became less attractive as investments.^[17] From April 2022 to January 2023, coinciding with the period of interest rate increases, the bank had no chief risk officer, and at the end of 2022, its marked-to-market unrealized losses for securities held to maturity exceeded $15 billion.^[18][16]

At the same time, startup companies withdrew deposits from the bank to fund their operations as private financing became harder to come by. To raise needed cash to fund the withdrawals, the bank sold all of its available-for-sale securities, realizing a $1.8 billion loss.^[19] The bank was criticized for timing its announcement shortly after Silvergate Bank, which catered to cryptocurrency users, started winding down its operations.^[20]

Some banking experts said that the bank would have managed its risks better had it not been for the Economic Growth, Regulatory Relief and Consumer Protection Act, enacted in 2018 and supported by SVB CEO Greg Becker, which reduced the frequency and number of scenarios of required stress testing implemented under the Dodd–Frank Wall Street Reform and Consumer Protection Act for banks with under $250 billion in assets.^[21]

Instability

In the week before the collapse, Moody’s Investors Service reportedly informed SVB Financial, the bank’s holding company, that it was facing a potential downgrade of its credit rating because of its unrealized losses.^[16] On March 8, 2023, SVB announced it had sold over $21 billion worth of its investments, borrowed $15 billion, and would hold an emergency sale of its stock to raise $2.25 billion.^[16] Despite the steps taken by the bank, Moody’s downgraded SVB on March 8.^[16][22] Investors at several venture capital firms, including Peter Thiel‘s Founders Fund,^[23] urged their portfolio companies to withdraw their deposits from the bank.^[24] By March 9, customers withdrew $42 billion, leaving the bank with a negative cash balance of about $958 million.^[25] Among the financial services companies receiving money from SVB customers were Brex, JPMorgan Chase, Morgan Stanley and First Republic Bank.^[26] Venture capital funds including Founders Fund, Union Square Ventures and Coatue Management had encouraged companies in their portfolios to avoid impact from SVB’s collapse by withdrawing their money,^[27] and Founders Fund withdrew all of its funds from the bank by the morning of March 9.^[28] The value of SVB’s shares plummeted until a trading halt was implemented on the morning of March 10.^{[29][30][31][32][33]}

On February 27, SVB Financial Group CEO Greg Becker sold 12,451 shares of company stock, worth $3.6 million, through an executive trading plan that he filed with the SEC under Rule 10b5-1 on January 26. The rule has been criticized as a loophole allowing for insider trading. Beginning April 1, the SEC will require a minimum 90-day cooling period for most executive trading plans.^[34]

Jonathan Capehart and Rep. Katie Porter discuss the Federal Deposit Insurance Corp. (FDIC) taking control of Silicon Valley Bank and its deposits after the bank shut down in what is the largest U.S. bank failure since the global financial crisis more than a decade ago, in the video published on March 12, 2023, by MSNBC, as “Silicon Valley Bank collapse, biggest since 2008“, below:

Alison Greenberg, CEO of Ruth Health, describes to CNN’s Erin Burnett what it was like to urgently withdraw money from Silicon Valley Bank before it collapsed, in the video published on March 11, 2023, by CNN, as “CEO describes pulling money from bank hours before collapse“, below:

Sheila Blair, former chair of the FDIC and author of the children’s book series, “Money Tales,” which provides financial literacy lessons to children, and Steve Liesman join Meet the Press following the failure of Silicon Valley Bank., in the video published on March 12, 2023, by NBC News, as “Fmr. FDIC chair: Silicon Valley Bank ‘didn’t have time to prepare’ to sell“, below:

This week saw the second biggest bank failure in American history. Silicon Valley Bank, an institution that serves much of the American tech industry, collapsed and was taken over by federal government regulators – all in the span of about 48 hours. Sheila Bair, FDIC Chair during the 2008 crisis, joins Ali Velshi to explain why this shocking closure likely isn’t something that will result in a widespread problem. “The FDIC has a perfect record” when it comes to returning funds to the insured, says Bair. “I don’t see a widespread problem at this point – I hope not.” in the video published on March 11, 2023, by MSNBC, as “Fmr. FDIC Chair Sheila Bair on the ‘rushed failure’ of Silicon Valley Bank“, below:

Treasury Secretary Janet Yellen called the Silicon Valley Bank failure a “concern,” but she emphasized that there would not be a bailout. “We’re not going to do that again,” she told “Face the Nation.” in the video published on March 12, 2023, by Face the Nation, as “Yellen rules out bailout for Silicon Valley Bank: “We’re not going to do that again”“, below:

Gary Cohn, the previous director of the National Economic Council under former President Donald Trump, discusses the Silicon Valley Bank collapse and why depositors have found it challenging to withdraw their money, in the video published on March 12, 2023, by CNN, as “Expert advises all depositors to get their money out of collapsed bank“, below:

In the video published on March 11, 2023, by All-In Podcast, as “E119: Silicon Valley Bank implodes: startup extinction event, contagion risk, culpability, and more“, below:

Peter Orszag, CEO of Financial Advisory at Lazard, joins CNBC’s “Squawk Box” to discuss Friday’s premarket action and the potential fallout from trouble at Silicon Valley Bank, in the video published on March 10, 2023, by CNBC Television, as “Silicon Valley Bank faces ‘classic run on a bank’, says Lazard’s Peter Orszag“, below:

CNBC’s Hugh Son joins “Squawk Box” to discuss what’s happening at Silicon Valley Bank and whether there’s a risk of contagion from high-profile investors pulling their money from the bank, in the video published on March 10, 2023, by CNBC Television, as “Silicon Valley Bank meltdown: Contagion risk or contained?“, below:

US Treasury Secretary Janet Yellen has said the government is not looking at bailing out Silicon Valley Bank, the sixteenth largest in the country, after it was shut down by US regulators on Friday. Authorities said they were worried about the banks liquidity after it lost money while selling assets. The concerns prompted the bank’s depositers, mainly tech companies, to rush to withdraw funds sparking fears over the wider banking sector. British finance minister Jeremy Hunt said the bank’s failure poses a serious risk for the technology and life science sectors in the UK, in the video published on March 12, 2023, by DW News, as “What the failure of Silicon Valley Bank means for the tech industry | DW News“, below: