The Silicon Valley Bank Collapse

Connie Yan

On March 10th, 2023, the Silicon Valley Bank (SVB) collapsed after a bank run, which occurs when many clients withdraw from a bank they believe will fail in the near future. The SVB collapse is marked as the second-largest bank failure in United States history since the 2008 financial crisis.

Located in Santa Clara, California, the SVB had many clients consisting of venture capital firms, startups, and wealthy tech workers. The bank had become a major player in the tech industry and managed to successfully compete against bigger-name banks. Some well-known clients of the bank included tech companies such as Roku, Roblox, and Vox Media.

During the Covid-19 pandemic, business peaked for the SVB as tech companies thrived. Customers loaded the bank with over $120 billion worth of deposits. In 2021, interest rates were at their all-time low, so the SVB turned to short-term and, eventually, long-term treasury bonds. These treasury bonds were (for the most part) considered safe as they were backed up by the US Government. However, these long-term treasury bonds began to drastically increase interest rates during the 2021-2023 inflation surge. The rise of interest rates hurt the value of government bonds, including SVB’s bond.

As tech sectors began taking a downward turn in recent months, startup companies began withdrawing deposits from SVB in order to fund their own operations as it became increasingly difficult to seek private financing. SVB eventually had to sell part of its bond holdings, losing $1.8 billion within a week. On March 8th, the bank announced that it had sold over $21 billion worth of securities and borrowed $15 billion. The news frightened SVB clients, as they proceeded to withdraw even more money from the bank, the start of SVB’s disastrous bank run. Clients withdrew an estimated $42 billion in deposits, dropping SVB’s share value by more than 60%. Eventually, the SVB had been taken over by the Federal Deposit Insurance Cooperation (FDIC).