The collapse of the Silicon Valley Bank (SVB) has been the largest bank failure in the US since the 2008 financial crisis.[0] On Friday, March 8, the Federal Deposit Insurance Corporation (FDIC) shut down the California-based bank due to a catastrophic bank run.[1] SVB was the “financial partner of the innovation economy” and serviced “nearly half” of all venture-backed US start-ups, including companies big and small, from Roku to D.C. based Compass Coffee.[2]
SVB was particularly flexible about lending tech startups money, often without the need of free cash flow or much in the way of assets, making it a preferred bank for many tech startups.[3] The bank had more than $200 billion in assets when it failed, which is far less than other large US banks, such as JPMorgan Chase’s $3.31 trillion.[4]
The bank’s original intention was to park the large sums of money from tech businesses in the form of ultra-safe US Treasury and mortgage bonds, which take years to mature but are relatively safe investments. However, when interest rates rose, the bank’s investments were put in jeopardy.
SVB was also criticized for its focus on diversity initiatives, which some argued took away from their core mission.[5] Florida Governor and presumptive presidential candidate Ron DeSantis also blamed the bank’s diversity programs as a factor in their failure, saying “I think that really diverted from them focusing on their core mission.”[2]
The Biden administration has approved an extraordinary intervention, stating all depositors at the failed Silicon Valley Bank would have access to all their money.[6] The Dodd-Frank regulations that SVB fought against might have helped identify the bank’s pitfalls earlier, and it remains to be seen how this will affect the tech sector moving forward.[7]
The FDIC said that it would protect all depositors at the two failed banks, not just smaller, insured, depositors.[8] The Federal Reserve and the Treasury Department also said that banks facing similar situations—having to sell Treasury securities to meet deposits—could instead borrow from the Fed using the Treasury securities as collateral.[8]
So, is this a bailout?[6] Technically no, as the FDIC is protecting depositors’ money, but it is an extraordinary intervention.
0. “Bernie Sanders blames Trump-era policy for Silicon Valley Bank run” Business Insider, 13 Mar. 2023, https://www.businessinsider.com/silicon-valley-bank-bernie-sanders-donald-trump-blame-2023-3
1. “There’s a deeper story to Silicon Valley Bank’s failure. What can we learn from it?” The Guardian, 13 Mar. 2023, https://www.theguardian.com/commentisfree/2023/mar/13/svb-collapse-2008-financial-crisis
2. “Opinion | The Boys Who Cried ‘Woke!’” The New York Times, 14 Mar. 2023, https://www.nytimes.com/2023/03/14/opinion/silicon-valley-bank-republicans-woke.html
3. “Despite rescue, Seattle startups and banks face SVB blowback” The Seattle Times, 14 Mar. 2023, https://www.seattletimes.com/business/despite-rescue-seattle-startups-and-banks-face-svb-blowback/
4. “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
5. “Republicans Have Found a Culprit for SVB’s Collapse” The Atlantic, 13 Mar. 2023, https://www.theatlantic.com/ideas/archive/2023/03/republicans-svb-collapse-wokeness-esg-dei/673378/
6. “Signature Bank’s collapse could deal a blow to cryptocurrency industry” The Washington Post, 13 Mar. 2023, https://www.washingtonpost.com/technology/2023/03/13/signature-bank-collapse-crypto/
7. “Trump-era banking law paved way for Silicon Valley Bank’s collapse” Vox.com, 13 Mar. 2023, https://www.vox.com/business-and-finance/2023/3/13/23638655/silicon-valley-bank-trump-fdic-banking-law
8. “Silicon Valley Bank: Who’s to Blame?” City Journal, 13 Mar. 2023, https://www.city-journal.org/silicon-valley-bank-who-is-to-blame