What To Know About Silicon Valley Bank’s Collapse—The Biggest Bank Failure Since 2008

Topline

Silicon Valley Bank collapsed in spectacular fashion Friday just days after it announced big losses, failing at attempts to raise funds or seek out a buyer, and creating the biggest bank failure in the United States since the Great Recession.

Key Facts

California-based Silicon Valley Bank was closed Friday morning by the state’s financial regulator, the Federal Deposit Insurance Corporation announced, becoming the largest bank to fail since the 2008 financial crisis.

The closure caps a few tumultuous days for SVB—a lender to technology startups—after it announced Wednesday it had sold $21 billion in securities at a loss of $1.8 billion and would seek to raise $2.25 billion in capital (it sought to sell $1.25 billion in common stock and $500 million in convertible preferred shares, and it announced a deal with General Atlantic to sell another $500 million of common stock contingent on the other common stock offering closing).

Shares of parent company SVB Financial were halted Friday morning after falling 64% in pre-market trading, following a 60% dive on Thursday as investors quickly sold shares.

Amid concerns about the bank’s stability, some venture capital funds, including Peter Thiel’s Founders Fund, advised portfolio companies to pull money out of SVB.

CEO Greg Becker told the bank’s clients to “stay calm” and that the bank has “ample liquidity” during a conference call Thursday.

SVB Financial was in talks to sell itself after attempts of raising capital failed, CNBC reported, though plans to find a buyer were abandoned.

The FDIC created the National Bank of Santa Clara to protect insured depositors, who will have access to their insured deposits no later than Monday, March 13, the FDIC announced Friday.

Other banks took a hit amid SVB’s failure as investors and analysts scope out other problems similar to those SVB faced, including First Republic Bank, whose shares fell as much as 52% during early trading—the value of its shares have fallen 35% over the past week.

Surprising Fact

SVB reported $212 billion in assets for the fourth quarter of 2022, making it the second-largest bank failure in U.S. history, second only to Washington Mutual, whose 2008 failure came as the bank had roughly $300 billion in assets. Silicon Valley Bank ranked as the 16th-largest bank in the United States based on assets prior to its collapse.

Key Background

After the tech industry grew during the pandemic, SVB’s clients deposited billions, bringing the bank from $60 billion in total deposits at the end of the first quarter 2020 to nearly $200 billion two years later. While deposits came in, SVB invested in debt like U.S. Treasuries and mortgage-backed securities, but as the Federal Reserve began to increase interest rates to combat inflation, the value of SVB’s investments fell. Higher interest rates also took a toll on SVB’s clients: Startup funding began to dry up as private fundraising became more costly, causing its clients to withdraw funds. Amid the surge in withdrawals, SVB sold assets (including bonds that had lost value due to interest rate increases) which created $1.8 billion in losses.

Tangent

The failure of both SVB on Friday and cryptocurrency bank Silvergate on Wednesday sparked fears of contagion and drew uncomfortable comparisons to the Great Recession. Some analysts agree contagion concerns are overblown in light of “idiosyncratic issues at individual banks,” Bank of America analyst Ebrahim Poonawala said, as SVB and Silvergate primarily operated within industries vulnerable to higher interest rates (cryptocurrencies, startups and venture capital) and many banks have broader customer bases. But shares of some of the nation’s largest banks, including JPMorgan, Wells Fargo and Citigroup, were up Friday after slumping on Thursday.

Further Reading

SVB Shut Down By California Regulator After Bank Stocks Crash Amid Turmoil (Forbes)

Biggest Bank Failure Since Great Recession Sparks ‘Overblown’ Fears Of Contagion—But Big Lingering Risks Remain (Forbes)

Explainer: What caused Silicon Valley Bank’s failure? (Reuters)

Why SVB Was Hit By a Bank Run and Where It Could Lead (Bloomberg)