The Collapse of Silicon Valley Bank: A Stark Reminder of Risk
By As the tech industry continues to grapple with a challenging economic climate, Silicon Valley Bank (SVB) became the latest victim of the downturn, collapsing and being taken over by federal regulators on Friday morning.[0] SVB was the 16th largest bank in the US, and its failure marked the second-largest bank collapse in US history, following the 2008 collapse of Washington Mutual.[1] SVB had $209 billion in assets and $175.4 billion in deposits at the time of failure, according to the FDIC.[2]
The bank provided financing for almost half of US venture-backed technology and health care companies, and its customer base was largely made up of tech workers and venture-capital backed companies.[0] Between 2018 and 2021, SVB’s deposit base increased 57% a year, compared with industry deposit growth of 12% a year.[3]
The bank’s failure appears to be somewhat self-inflicted, as it was heavily exposed to outsize unrealized losses due to its rapid deposit growth. To make matters worse, many of its clients, including Peter Thiel’s Founders Fund, pulled their money from the bank and quietly urged others to do the same.
The Treasury Department, the Federal Reserve, and the FDIC announced that they were taking “decisive actions” to protect the economy and shore up confidence in the banking system, including guaranteeing all of SVB’s depositors’ funds, making funding available for other financial institutions, and providing a $25-billion backstop for the failing banks to pay their depositors.[4]
At the same time, justice department investigators were examining whether Signature Bank, which had also failed, took adequate measures to detect potential money laundering by its clients, and the SEC was also taking a look.[5] Florida Governor Ron DeSantis blamed the bank’s diversity programs for its collapse.[6]
The bank’s downfall was also the result of a 2018 law, signed by President Donald Trump, that rolled back regulations on all but the country’s largest banks.[7] This allowed Silicon Valley Bank to escape regulatory scrutiny and take on more risky investments.
President Joe Biden addressed the issue on Monday, saying “Americans can have confidence that the banking system is safe. Your deposits will be there when you need them.”[8]
The collapse of Silicon Valley Bank is a stark reminder of the risk associated with relying too heavily on one sector or industry.
0. “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
1. “U.S. government steps in to shore up deposits at Silicon Valley Bank and another failed institution” CBS News, 13 Mar. 2023, https://www.cbsnews.com/news/silicon-valley-bank-deposits-guaranteed-signature-bank-federal-reserve-fdic/
2. “The facts on Trump's 2018 loosening of regulations on banks like SVB” CNN, 14 Mar. 2023, https://www.cnn.com/2023/03/14/politics/facts-on-trump-2018-banking-deregulation/index.html
3. “Why Investors Should Care About the Banking Scare” Morningstar, 14 Mar. 2023, https://www.morningstar.com/articles/1144082/why-investors-should-care-about-the-banking-scare
4. “Silicon Valley Bank bailout: Did the government just bail out SVB and Signature?” Vox.com, 13 Mar. 2023, https://www.vox.com/money/2023/3/13/23638417/svb-bank-bailout-signature-fed-fdic-treasury-janet-yellen
5. “Signature Bank Faced Criminal Probe Ahead of Firm's Collapse” Bloomberg, 15 Mar. 2023, https://www.bloomberg.com/news/articles/2023-03-15/signature-bank-faced-criminal-probe-ahead-of-firm-s-collapse
6. “Opinion | The Boys Who Cried ‘Woke!’” The New York Times, 14 Mar. 2023, https://www.nytimes.com/2023/03/14/opinion/silicon-valley-bank-republicans-woke.html
7. “Silicon Valley Bank bailout implies tech startups are too big to fail” The Washington Post, 14 Mar. 2023, https://www.washingtonpost.com/technology/2023/03/14/tech-startups-bailout-silicon-valley-bank/
8. “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
