The collapse of Silicon Valley Bank last week was the largest bank failure in the United States since the 2008 financial crisis.[0] SVB, a publicly traded bank based in Santa Clara, California, catered to nearly half of all venture-backed US startups and was closely tied to the tech industry. On March 8, the bank’s parent company, SVB Financial Group, announced it had sold off $21 billion of assets at a $1.8 billion loss, triggering a bank run and leaving them insolvent by Friday.[1]
SVB had become a key part of the Silicon Valley financial infrastructure, particularly for startups, by offering lines of credit and venture debt that other banks were often reluctant to provide. The bank also offered mortgages and wealth management services to venture capitalists, and made attractive deals with large tech customers. By the end of December 2021, it held around $209 billion in total assets.
When panic spread among depositors, the Federal Deposit Insurance Corporation (FDIC) stepped in to take over SVB and insure all depositors, even those above the normal $250,000 limit for federal insurance.[2] As of Monday, March 13, depositors had full access to their money.
The crisis appears to have been caused primarily by poor management and a bet on low interest rates that backfired. SVB was heavily invested in federal financial instruments, and when the Federal Reserve raised rates to tame inflation, the value of those bonds dropped and the bank was left with a deep hole that led to customers rushing to pull their money out.[3]
The failure has been used by some conservative culture warriors to point to what they see as the effects of a “leftist/woke ideology” that took precedence over “common sense business practices.”[4] But a closer look at SVB’s history suggests a more nuanced story, in which a confluence of difficult economic conditions, a lack of diversification, and a vulnerable customer base all contributed to the bank’s collapse. The FDIC’s decision to insure all deposits, meanwhile, may have been what saved the tech industry from a much more severe financial crisis.
0. “Startups ‘on pins and needles’ until their funds clear from Silicon Valley Bank” NPR, 14 Mar. 2023, https://www.npr.org/2023/03/13/1163272334/silicon-valley-bank-startups-worries
1. “What is Silicon Valley Bank? The bank’s collapse, explained.” Vox.com, 12 Mar. 2023, https://www.vox.com/technology/23634433/silicon-valley-bank-collapse-silvergate-first-republic-fdic
2. “The collapse of Silicon Valley Bank, explained visually” USA TODAY, 14 Mar. 2023, https://www.usatoday.com/story/graphics/2023/03/13/graphics-bank-collapse-silicon-valley/11466073002/
3. “America’s biggest problem is its politics, not its banks” CNN, 14 Mar. 2023, https://www.cnn.com/2023/03/14/politics/american-banking-politics-svb-analysis/index.html
4. “Silicon Valley’s surreal weekend” TechCrunch, 13 Mar. 2023, https://techcrunch.com/2023/03/12/silicon-valleys-surreal-weekend-svb-crash-2023/