Silicon Valley Bank Collapse
How did Silicon Valley Bank collapse in 48 hours? A timeline of the biggest bank collapse since 2008 🏦 📉
Silicon Valley Bank (SVB), facing a sudden bank run & capital crisis, collapsed Friday morning and was taken over by federal regulators
It was the largest failure of a US bank since Washington Mutual in 2008
🤔 WHAT IS SVB?
– Founded in 1983, Silicon Valley Bank specialized in banking for tech startups
– It provided financing for almost half of US venture-backed technology & healthcare companies
– While relatively unknown outside of Silicon Valley, SVB was among the top 20 American commercial banks, with $209 billion in total assets at the end of 2022
🧐 WHY DID IT COLLAPSE?
– Short answer: SVB encountered a run on the bank
– Long answer: Several forces collided
1️⃣ First, there was the Federal Reserve, which began raising interest rates a year ago to tame inflation
Higher interest rates = less momentum for tech stocks = eroding the value of long-term bonds that SVB and other banks raked up during the era of ultra-low, near-zero interest rates
2️⃣ At the same time, venture capital began drying up, forcing startups to draw down funds held by SVB
So the bank was sitting on a mountain of unrealized losses in bonds just as the pace of customer withdrawals was escalating
3️⃣ Then panic kicked in …
On Wednesday, SVB announced it had sold a bunch of securities at a loss, and that it would also sell $2.25 billion in new shares to fortify its situation
That triggered a panic among key venture capital firms, who reportedly advised companies to withdraw their money from the bank
4️⃣ The bank’s stock began plummeting Thursday morning 🔻
By the afternoon it was dragging other bank shares down with it as investors began to fear a repeat of the 2007-2008 financial crisis
5️⃣ By Friday morning, trading in SVB shares was halted and the bank was shut down, placing it in receivership under the Federal Deposit Insurance Corporation (FDIC)
SVB not only took startups’ cash but also offered them venture debt and other loans while providing banking and lending money to VC firms
The FDIC has transferred all SVB’s deposits to a new bank, said that “all insured depositors will have full access to their insured deposits no later than Monday morning.”
Roku, Etsy, Roblox, Vimeo, … among companies impacted and unclear how much they will be able to recover
Despite initial panic, analysts said the collapse is unlikely to set off a similar domino like during the financial crisis: the system is well-capitalized and SVB is too small to cause a threat, analysts say.
😕 WHAT’S NEXT?
Smaller banks that are disproportionately tied to cash-strapped industries like tech and crypto may be in for a rough ride
The FDIC typically sells a failed bank’s assets to other banks, using the proceeds to repay depositors whose funds weren’t insured
A buyer could still emerge for SVB, though it’s far from guaranteed
Source: Nick Vinckier