The collapse of Silicon Valley Bank (SVB), a key player in the technology and venture capital community, leaves its business and retail customers uncertain what will happen to their money.

Why is Silicon Valley Bank failing?

The failure of Silicon Valley Bank was a major story this weekend. The bank, the main bank for Silicon Valley companies and their employees, was forced to file for bankruptcy due in part to the US Federal Reserve raising interest rates. The news sent shockwaves through the financial markets and investors around the world.

History of Silicon Valley Bank

Silicon Valley Bank was a bank specialising in financing technology start-ups, biotech companies and other high-growth businesses in Silicon Valley. 

It was founded in 1983 and became one of the most respected and successful banks in the region. It had a diverse customer base, ranging from small start-ups to large technology companies.

The bank also enjoyed rapid success, helping to finance some of Silicon Valley's most iconic companies, such as Apple, Google and Amazon.

However, the bank has started to struggle in recent years. It has suffered significant losses on its loans to biotech companies, which have experienced financial difficulties due to increased competition and government regulation.

On the other hand, the Fed's interest rate hikes in 2022 and 2023 have caused the value of Silicon Valley Bank's MBS (mortgage-backed securities that the bank had acquired) to fall. This rise in rates also increased Silicon Valley Bank's borrowing costs, as it had to pay higher interest rates on its loans and bonds.

The combination of these factors eventually led to Silicon Valley Bank's bankruptcy. The bank was unable to repay its creditors and was forced to file for bankruptcy.

Silicon Valley Bank's Bank Run

According to a document published this Friday by the California Department of Consumer Financial Protection (DFPI), withdrawal orders to SVB reached $42 billion on Thursday alone. This phenomenon of bank panic is called Bank Run.

As a result, Silicon Valley Bank (SVB) was shut down by the California Financial Supervisory Authority on March 10 after announcing a major sale of assets and stock to raise additional capital. 

The Federal Deposit Insurance Corporation (FDIC) was appointed as receiver to protect the insured deposits. However, the FDIC only insures $250,000 per depositor, per institution and per property class. 

This event is therefore considered historic as it represents both the largest bank failure since the 2008 crisis and the second largest retail bank failure in US history.