How a sudden bank run triggered the largest US failure since 2008
In short: In March 2023, Silicon Valley Bank collapsed after customers withdrew $42 billion in a single day. Driven by rising interest rates and a massive surge in uninsured deposits, the bank's failure sent shockwaves through the tech industry, leaving many startups briefly unable to access their funds.
The collapse was precipitated by a liquidity crisis. Seeking higher returns, SVB had significantly increased its holdings of long-term securities since 2021. However, as the Federal Reserve raised interest rates to combat inflation, the market value of these bonds fell, creating significant unrealized losses. By the end of 2022, the bank's held-to-maturity portfolio alone faced unrealized losses exceeding $15 billion.
The bank's vulnerability was heightened by its unique client base. SVB was heavily skewed toward the technology industry, serving nearly half of all U.S. venture capital-backed healthcare and technology companies. Significantly, deposits exceeding FDIC insurance limits accounted for roughly 89 percent of the bank's $172 billion in liabilities.
The crisis accelerated on March 8, 2023, when SVB announced it had sold over $21 billion in securities and borrowed $15 billion to raise cash. This announcement, combined with warnings from prominent investors, triggered a massive bank run. Following $42 billion in withdrawals by the following day, the bank's cash position fell to a deficit of roughly $958 million. On March 10, 2023, the California Department of Financial Protection and Innovation seized the bank, placing it under FDIC receivership.
This collapse represented the largest banking failure since the 2008 crisis and the third-largest in US history. While some viewed the government's decision to guarantee all depositors as a bailout, officials clarified the plan was intended to make uninsured depositors whole using the proceeds from selling the bank's assets, rather than using taxpayer money.
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- Summary by Intellect · source: Collapse of Silicon Valley Bank
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