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Four decades after its creation, Silicon Valley Bank was the 16th largest bank in the US. It took just a day and a half for it to fall apart.

Ben Eisen, Reporter, Wall Street Journal: “This is the second biggest bank failure that’s ever happened in the United States.”

Once seen as a major tech banking player, SVB’s stunning collapse spurred other bank closures, rattled global markets and threatened the livelihoods of startups across the country.

So, what went wrong?

 

 

The events leading up to SVB’s collapse

Silicon Valley Bank opened in 1983 to serve fledgling tech companies. Eventually, nearly half of the country’s venture capital backed technology and life sciences companies would rely on SVB.

Roku, ROBLOX and many others put millions into the bank, helping SVB become one of the nation’s largest.

Ben Eisen, Reporter, WSJ: “Some of these clients would definitely be considered risky. These are companies that move quickly and their money moves quickly.

When things sort of went off the rails, they were quick to move their money out of the bank.”

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After the banking crisis that triggered the Great Recession, President Barack Obama signed the Dodd Frank Act, making banks like SVB face stricter regulation.

Barrack Obama, US President (2009 to 2016): “It is designed to make sure that everybody follows the same set of rules.”

But eight years later during the Trump administration, some of those regulations on smaller banks were rolled back.

Donald Trump, US President (2017 to 2018; 2025-): “By liberating small banks from excessive bureaucracy and that’s what it was, bureaucracy, we are unleashing the economic potential of our people.”

Ben Eisen, Reporter, WSJ: “Some of the rules were rolled back for these banks that had less than $250 billion in assets. So you have the biggest banks
like Bank of America and Chase. Those have very strict rules but the ones that are a step below have looser rules.”

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Two years later, SVB was flooded with cash as businesses deposited more during the pandemic. Deposits tripled in two years to $189 billion, making 2021 SVBs most profitable year. Ever.

Greg Becker, CEO, Silicon Valley Bank: “Our core business continues to fire on all cylinders.”

So SVB Financial took that cash and bought tens of billions of dollars of longer term US treasuries and government backed mortgage securities.

Products usually considered safe.

Ben Eisen, Reporter, WSJ: “People and companies just put money in their bank accounts . . . And banks said, we have to do something with this; we have to earn some income on it.

So they bought bonds with it.”

SVB’s securities portfolio rose about a hundred billion dollars in under a year.

Ben Eisen, Reporter, WSJ: “After SVB had stockpiled that hundred billion dollars plus in bonds — all of a sudden interest rates rose.

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Jerome Powell, Federal Reserve Chair: “Committee anticipates that ongoing increases in the target range for the federal funds rate will be appropriate.”

Ben Eisen, Reporter, WSJ: “What happens when interest rates rise is,
bond prices fall. Banks, including SVB that were holding onto a lot of bonds,
were sitting on a bunch of losses.”

What was the turning point that marked SVB’s downfall?

Soon, SVB’s investments were worth $17 billion less than their fair value.

What was the turning point that marked SVB’s downfall?

Ben Eisen, Reporter, WSJ: “And so all of a sudden, the gap between what SVB had paid for those bonds and what they were worth on paper had jumped to more than $17 billion . . .

And that was the key risk that would eventually lead to SVB’s undoing.”

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Making matters worse, as interest rates rose, new deposits shrank, falling nearly $30 billion from March to December.

Talking about the end of 2022, CEO Greg Becker told CNBC, “We kind of felt that that bottoming out. We’ve kind of felt that we were kind of at that, that lower point.”

The vast majority of the bank’s deposits were held in just 37,000 accounts
that held more than $250,000. The amount insured by the FDIC.

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Then in a regulatory filing on March 8th, SVB announced it sold a large chunk of securities at a loss of about $1.8 billion to help it cover that decline in deposits.

Ben Eisen, Reporter, WSJ: “The regulatory filing that Wednesday sparked a lot of fear. The stock fell a tremendous amount, which is never a good sign.”

And investors were already on edge. Crypto-focused bank Silvergate had just announced it would wind down and return all deposits. So the bottom was about to fall out.

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Startup CEOs began receiving urgent calls from panicked venture capital investors.

Alison Greenberg, Client of Silicon Valley Bank: “He was out of breath like he had just run a marathon. And he said, take your money out of SVB. Go into your account, take your money out as soon as possible.”

What started as a trickle of withdrawals quickly turned into a tidal wave as word spread across the valley. More and more startups pulled their cash.

It was a run on the bank.

And the beginning of the end for SVB.

The next day, the bank’s stock price went into free fall, as customers tried to withdraw $42 billion in deposits.

SVB ran out of cash.

Ben Eisen, Reporter, WSJ: “All of a sudden, everyone’s saying, ‘Whoa, wait a minute. This bank is risky.’

The bank has enough money to cover deposits if they come out in sort of a peaceful, orderly fashion.

When everyone’s racing for the exits at once, it doesn’t.”

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That day, regulators seized the bank.

The FDIC said in a statement that customers would have full access to their insured deposits in three days.

But the bank had more than $151 billion worth of deposits at the end of 2022 that weren’t insured.

They were over the $250,000 limit.

Two days after SVB’s collapse, a second bank with a different set of problems, Signature failed and was seized by regulators, The third largest failure in history.

Ben Eisen, Reporter, WSJ: “And now people are starting to worry about other banks as well. It’s very much kind of a a whack-a-mole situation right now.

Federal officials, state officials, everyone’s in sort of this unenviable position
of trying to shore up confidence in the banking industry so it doesn’t turn into an even bigger panic.

On Sunday, March 12th, regulators announced that even uninsured deposits over $250,000 from the two banks would be covered.

On Monday, March 14th, Signature told clients that due to the US Treasury, Federal Reserve and FDIC, all deposits were not at risk.

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SVB’s focus on Silicon Valley made it uniquely vulnerable to a run.

Ben Eisen, Reporter, WSJ: “Its fortunes were really tied to the fortunes of this one industry. But what’s more, this is an industry that has flighty deposits.
You can’t really rely on this short-term funding necessarily to support these long-term investments and bonds.

Now some, like President Joe Biden are blaming the Dodd Frank Act rollback for the failures.

Joe Biden, US President (2021 to 2024) I’m gonna ask Congress and the banking regulators to strengthen the rules for banks to make it less likely this kind of bank failure would happen again.”

With investigations into SVB underway, the bank’s clients will see their money returned. But shareholders are out of luck. When asked about the possibility
of bailing out Silicon Valley Bank, the Treasury Secretary said,

Janet Yellen, Treasury Secretary: “We’re not going to do that again.

But we are concerned about depositors and are focused on trying to meet their needs.”

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Questions

 

Bank, Financial Institution. Silicon Valley Bank had a long, graduate decline. True or false?

Deposit, Withdrawal. Was Silicon Valley Bank mostly involved with car loans, mortgages and home ownership?

Savings Account. Did Silicon Valley Bank deal with working class and middle class depositors. How would you characterize the depositors of Silicon Valley Bank?

Credit, Debit. US Banks operate completely independently from the government. The US government has in influence or involvement in US banks. Is this right or wrong?

Lend, Borrow, Loan. Had deposits in SVB increased linearly over the years or was there a spike?

Mortgage. Did people’s money just “sit” in SVB? Did SVB invest the money as venture capital (risk capital) in high-tech enterprises?

Interest, Interest Rate. Silicon Valley Bank’s problems resulted from failed enterprises. Is this correct or incorrect?

Installments. Were depositors very patient? How did SVB react?

Investment. Everyone lost their entire savings. Yes or no?

Stocks, Bonds, Shares. Did the US government just sit back and do nothing?
 
 
 
Treasuries, Securities. Are you familiar with bank failures or bank runs?

Mutual Fund. What causes bank failures and bank runs?

Hedge Fund. What can or should people, banks and governments do?

Startup, Enterprise. What might happen in the future?