How Silicon Valley Bank's Collapse Shook the Tech World

SVB's collapse was driven by interest rate risk, not crypto assets: the bank had parked billions of customer deposits in long-term U.S. Treasury bonds and mortgage-backed securities when rates were low.

As the Federal Reserve raised interest rates sharply through 2022 to fight inflation, the market value of SVB's older, lower-yielding bonds fell, leaving the bank with billions in unrealized losses.

On March 8, 2023, SVB announced it had sold $21 billion of its available-for-sale securities at a realized loss of about $1.8 billion, wiping out a big chunk of its capital.

SVB tried to raise about $2.25 billion in capital by selling common stock, preferred shares, and a stake to private equity firm General Atlantic, but the plan collapsed as its stock price plunged more than 60% in a single day.

The announcement triggered a classic bank run: customers, many of them tech startups, tried to withdraw about $42 billion in a single day, roughly a quarter of the bank's total deposits.

Some prominent venture capital firms reportedly advised their portfolio companies to pull deposits out of SVB, accelerating the run.

On March 10, 2023, the California Department of Financial Protection and Innovation closed SVB and appointed the FDIC as receiver.

The FDIC initially created the Deposit Insurance National Bank of Santa Clara to hold SVB's insured deposits, then converted it into a full bridge bank, Silicon Valley Bridge Bank, N.A.

Regulators invoked a 'systemic risk exception' so that all depositors, not just those insured up to the standard $250,000 limit, would be made whole.

Depositors were able to access all of their money starting Monday, March 13, 2023, just three days after the bank was seized.

The FDIC said the extra costs of covering uninsured deposits would be paid through a special assessment on other banks, not by taxpayers.

SVB's shareholders and unsecured creditors were not protected and lost most or all of their investments as the bank's remaining assets were sold off.

SVB's senior executives, including CEO Greg Becker, were removed, and regulators opened investigations into the bank's risk management and stock sales by executives before the collapse.

Signature Bank, a New York bank with heavy exposure to cryptocurrency clients, failed just two days later on March 12, 2023, in a related wave of banking-sector panic.

First Citizens Bank later purchased the assets and deposits of Silicon Valley Bridge Bank from the FDIC in a deal announced in late March 2023.

SVB's collapse disrupted banking relationships for thousands of startups, many of whom scrambled over a single weekend to line up payroll funding and new banking partners.

The episode renewed debate over 2018 rollbacks of post-2008 banking regulations, since a law passed that year had raised the asset threshold for the strictest stress-testing requirements, exempting banks of SVB's size at the time.

SVB, founded in 1983, had grown rapidly during the tech boom of 2020-2021 as startups flush with cash deposited billions of dollars, more than tripling the bank's deposits in two years.