Silicon Valley Bank Collapse: A Look at the 48-Hour Meltdown
By Silicon Valley Bank was one of the most important banks in the Silicon Valley region, catering to nearly half of all venture capital-backed US start-ups.[0] It was founded in 1983 and, as of 2021, had $209 billion in assets. However, earlier this week, signs of trouble began to emerge and by Friday it had become the second largest American bank failure since the 2008 financial crisis.[1]
The meltdown of Silicon Valley Bank was largely the result of a good old-fashioned bank run, as clients tried to withdraw their money before it was too late. The bank took deposits from clients and invested them in generally safe securities, like bonds, but as the Federal Reserve increased interest rates, those bonds became worth less.[2] This, combined with the slowdown in venture capital and tech more broadly, meant there was less money coming in, leading to clients wanting to withdraw their money.
The problem was exacerbated by the fact that the bank only catered to tech startups, making it heavily exposed to risk. SVB was also particularly flexible about lending tech startups money without them having free cash flow or many assets.[3] This meant that when things got bad for its tech clients, it quickly got bad for the bank.[2]
The Biden administration has since approved an extraordinary intervention, stating that all depositors at the failed Silicon Valley Bank will have access to all their money.[0] The Federal Deposit Insurance Corporation (FDIC) will insure all of SVB’s deposits, even those above the normal Federal Deposit Insurance Corp. limit of $250,000.[3] This will help ensure that those with larger accounts don’t lose substantial amounts of money.
The Biden administration is pushing back hard on the idea that this was a bailout, emphasizing that “no losses will be borne by the taxpayers” related to the government’s intervention for Silicon Valley Bank.[4] However, some remain skeptical.[5] Silicon Valley Bank’s 48-hour collapse is a reminder of the fragility of the banking system and the importance of understanding how banks operate and the risks associated with them.[6]
0. “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/
1. “There’s a deeper story to Silicon Valley Bank’s failure. What can we learn from it?” The Guardian, 13 Mar. 2023, https://www.theguardian.com/commentisfree/2023/mar/13/svb-collapse-2008-financial-crisis
2. “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
3. “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/
4. “With Silicon Valley Bank depositors protected, let the bailout debate begin” Axios, 13 Mar. 2023, https://www.axios.com/2023/03/13/let-the-bailout-debate-begin-silicon-valley-bank-fdic
5. “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
6. “Startups ‘on pins and needles' until their funds clear from Silicon Valley Bank” NPR, 14 Mar. 2023, https://www.npr.org/2023/03/13/1163272334/silicon-valley-bank-startups-worries
