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On Friday, March 10th 2023 one of the most prominent lenders in the world of technology companies, Silicon Valley Bank, collapsed after a bank run and capital crisis led to the second-largest failure of a financial institution in US history. The Federal Deposit Insurance Corporation (FDIC) had to take over the 40-year-old institution that had over USD 200bn in assets at the end of 2022.
Entrance of the SVB building in California; Source: The Information
SVB was the premier banking partner for startups and growth companies that have raised (and thus deposited) large sums in the low interest rate environment in the past decade - so much that SVB’s deposits grew from USD 49bn at the end of 2018 to ~190bn at the end of 2021.
As banks do, SVB invested a large share of those customer deposits into long-dated Treasury and mortgage bonds just before the Federal Reserve began to raise interest rates, then failed to make provisions for the possibility of rising interest rates. As interest rates rose, the bank's holdings became less attractive, and its clients began to withdraw their money, which forced the bank to sell off some of its investments. This led to a loss of nearly USD 2bn for the bank, which SVB communicated on Thursday, March 9th.
Bank runs are nothing new - they’ve happened many during many crisis. Source: Investopedia.com
Those news started an unfavourable set of effects for SVB: through the loss announcement, even more companies started to withdraw their assets from SVB, which further deepened its liquidity crisis with clients withdrawing as much as USD 42bn on March 9th alone.
Ultimately the FDIC had to step in and take over the bank. Information collected from articles from the New York Times, CNBC, Barron’s and The information.
Next steps
All insured depositors will have full access to their insured deposits (up to USD 250’000 per customer) no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds.
As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors, this process might take months or even years to complete.
Official statement from FDIC