The collapse of Silicon Valley Bank, explained visually

When Silicon Valley Bank collapsed on Friday, it created the second largest bank failure in U.S. history.

Here’s how it all fell apart:

As the bank became the 16th largest in America, SVB invested its funds in long-term bonds when rates were near zero.

It may seem like a good idea at the time, but when interest rates rose, long-term bond prices fell, squeezing their investments.

On Wednesday, SVB announced that he suffered an after-tax loss of $1.8 billion and urgently needed to raise more capital to address depositors’ concerns.

The market reacted strongly and SVB lost over $160 billion in value in 24 hours.

As the stock fell, depositors moved quickly to withdraw cash from the bank.

Banks only carry a fraction of depositors’ money in cash – called a fractional reserve. This meant that SVB could not give their money to depositors because it was held in these long-term bond investments which were no longer worth as much.

In short, SVB did not have the liquidities necessary to fulfill its obligations towards its customers. As the panicked withdrawal continued, a bank run was underway.

SO the Federal Deposit Insurance Corporation took over SVB on Friday for depositors to have access to their money by Monday, and because the bank’s problems posed a major risk to the financial system.

This is the kind of action represented by the “FDIC Insured” sign you may have seen at your local bank.

It was not just depositors who took their assets away from the bank.

Bloomberg reports that SVB CEO Greg Becker sold $3.6 million worth of company stock less than two weeks before the company disclosed the steep losses that led to his demise and that Peter Theil founder’s fund withdrew millions by Thursday morning.

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