Silicon Valley Bank Collapse: What You Need to Know
On March 17, 2023, Silicon Valley Bank collapsed after a two-day bank run starting on March 8th, becoming the second-largest bank failure in U.S. history. SVB had emerged as the bank to go-to for tech startups and venture capital firms, but its downfall was caused by three main factors. Firstly, SVB had a high percentage of large deposits that were not covered by FDIC deposit insurance. Secondly, the bank had become overly reliant on low-cost financing from a federal home-loan bank, and lastly, the bank had no chief risk officer for eight months in 2020, the year of the crypto crisis and tech meltdown.
This bank run triggered a liquidity crisis among smaller, regional banks, and led to the U.S. Treasury, Federal Reserve, and FDIC’s coordinated Sunday night liquidity backstop. This backstop, in the form of one-year loans to eligible depository institutions, was made possible by the Bank Term Funding Program (BTFP).
For depositors of SVB and other affected banks, it is important to know that the FDIC insures deposits up to $250,000. Those with deposits beyond the limit may be out of luck, and should take caution with any banking transactions.
0. “March 2023 Newsletter: A Look at Bank Solvency” Lyn Alden, 13 Mar. 2023, https://www.lynalden.com/march-2023-newsletter/
1. “How does a bank collapse in 48 hours? A timeline of the SVB fall” CNN, 13 Mar. 2023, https://www.cnn.com/2023/03/11/business/svb-bank-collapse-explainer-timeline/index.html
2. “We Know Who’s to Blame for the Silicon Valley Bank Failure” The Atlantic, 16 Mar. 2023, https://www.theatlantic.com/ideas/archive/2023/03/svb-collapse-fed-regulation-financial-system-safety/673401
3. “A bailout or not? Did the federal government bailout Silicon Valley Bank and Signature Bank?” ABC News, 16 Mar. 2023, https://abcnews.go.com/Business/bailout-federal-government-bailout-silicon-valley-bank-signature/story?id=97846142