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Silicon Valley Bank Fails

Unless you work in tech, you had probably never heard of Silicon Valley Bank before recently. It had billions of dollars in deposits, but fewer than two dozen branches, and generally catered to a very specific crowd of startups, venture capitalists, and tech firms. Banking regulators shut down Silicon Valley Bank, or SVB, last Friday after the bank suffered a sudden, swift collapse, marking the second-largest bank failure in US history. Just two days prior, SVB signaled that it was facing a cash crunch. It first tried to raise money by selling shares and then it tried to sell itself, but the whole thing spooked investors, and ultimately, it went under. On Sunday, March 12, the federal government said it would step in to make sure all of the bank’s depositors would have access to their funds by Monday, March 13. Regulators also shuttered another bank, Signature Bank of New York, which was heavily concentrated in the crypto currency space, and the federal government said its depositors’ money would be guaranteed as well.

Since this story is dominating the news cycle right now, we thought we would answer some of the common questions we are getting and offer a few thoughts on the situation.

1) What is SVB, and how big is it?

Silicon Valley Bank was founded in 1983 in Santa Clara, California, and quickly became the bank for the fast-growing tech sector there and the people who financed it (as was its intention). The bank itself claimed to bank for nearly half of all US venture-backed startups as of 2021. It’s also a banking partner for a lot of the venture capital firms that fund those startups. SVB calls itself the “financial partner of the innovation economy.” All that basically means it’s tightly woven into the financial infrastructure of the tech industry, especially startups. This arrangement has been great for SVB when things were great for the tech industry and not so great when they weren’t. SVB had more than $200 billion in assets when it failed. At the end of last year, they were the 16th largest bank by deposits, behind Morgan Stanley and in front of Fifth Third Bank. SVB is the largest bank to fail since the Great Recession, as well as, again, one of the largest US banks to fail ever.

2) What happened to SVB?

Silicon Valley Bank failed largely as the result of a good old-fashioned bank run after signs of trouble began to emerge in the second week of March. The bank takes deposits from clients and invests them in generally safe securities, like bonds. As the Federal Reserve has increased interest rates, those bonds have become worth less. That wouldn’t normally be an issue — SVB would just wait for those bonds to mature — but because there’s been a slowdown in venture capital and tech more broadly, deposit inflows slowed, and clients started withdrawing their money. On Wednesday, March 8