How does a bank collapse in 48 hours? A timeline of the SVB fall
This week, the go-to bank for US tech startups came rapidly unglued, leaving its high-powered customers and investors in limbo.
Silicon Valley Bank, facing a sudden bank run and 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. Here’s what we know about the bank’s downfall, and what might come next.
What is SVB?
Founded in 1983, SVB specialized in banking for tech startups. It provided financing for almost half of US venture-backed technology and health care 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 last year, according to the FDIC.
Why did it fail?
In short, SVB encountered a classic run on the bank. The longer version is a bit more complicated. Several forces collided to take down the bank.
First, there was the Federal Reserve, which began raising interest rates a year ago to tame inflation. The Fed moved aggressively, and higher borrowing costs sapped the momentum of tech stocks that had benefited SVB.
Higher interest rates also eroded the value of long-term bonds that SVB and other banks gobbled up during the era of ultra-low, near-zero interest rates. SVB’s $21 billion bond portfolio was yielding an average of 1.79% — the current 10-year Treasury yield is about 3.9%.
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.
