How Silicon Valley Bank failed

Silicon Valley Bank customers line up before a branch opening at the SVB headquarters in Santa Clara, California on March 13. Photo: Noah Berger/AFP via Getty Images

Bank of Silicon Valley Friday became the largest bank since 2008 to collapse, fueling widespread uncertainty about the ripple effects on the U.S. banking sector.

The big picture: SVB was the 16th largest bank in the country and a leading financial institution for technology and life sciences companies.

2nd largest bank failure in U.S. history
  • SVB has become a backbone of the startup ecosystemstart-ups often finding that the bank would take their business when others would not.
  • THE the bank’s deposit base has increased when tech stocks and startup valuations rose in an era of cheap money, when interest rates were low.
  • As interest rates rose, startups found it harder to raise funds and burned through their deposits to keep operating.

At the same time, SVB – as all banks do – had invested this money in loans or government bonds. But the ones he chose fell in value as interest rates rose.

  • As these investments lost value, a hole was created in the bank’s balance sheet.
What happened at Silicon Valley Bank?
  • SVB announced on Wednesday evening that it was looking to raise more than $2 billion in additional capital to try to plug this hole.
  • What followed was a stampede among investors and depositors, panicked by SVB’s sudden rush to raise more money.
  • THURSDAY, SVB shares fell more than 60%wiping out $9.4 billion in market value.
  • Several large venture capitalists, spooked by SVB’s tenuous prospects, suggested holding companies take money out of the bank.

Between the lines: Banks become the creditors of businesses and individuals who make deposits. Thus, if a flood of depositors demand their repayment at the same time, as they did at the SVB, they run the risk of failure if the current value of their assets is insufficient.

Then, after the historical race on the riverbankUS banking regulators on Friday took control of SVB.

  • The Federal Deposit Insurance Corporation (FDIC) created a new bankto which everything SVB deposits have been transferred.
  • Deposits, however, are only FDIC-insured up to $250,000, and the majority of SVB customers have much higher balances.
  • The FDIC has been seeking to find a buyer for SVB – with a deadline for all offers to be submitted on Sunday – but since Monday afternoon, none emerged.
  • Silicon Valley Bank’s UK operations, however, have been sold to HSBC from Monday morning.
  • On Sunday evening, the government said it would fully guarantee depositors in the event of failure Bank of Silicon Valley And Signature Banka key bank for the cryptocurrency industry.

President Biden Monday sought to ensure Americans that the “banking system is safe” and that their “deposits are safe”.

  • He also promised to do “everything necessary” to avoid any further bank runs.

Go further… Follow the latest updates on the Silicon Valley Bank collapse.

Axios’ Dan Primack, Neil Irwin, Matt Phillips and Felix Salmon contributed reporting.

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