On March 10, 2023, Silicon Valley Bank (SVB) failed after a bank run, marking the second-largest bank failure in United States history and the largest since the 2007–2008 financial crisis.
The collapse of SVB had significant consequences for startup companies in the U.S. and abroad, with many briefly unable to withdraw money from the bank. Other large technology companies, media companies, and wineries were also affected. For a number of founders and their venture capital backers, this was the bank of choice.
SVB’s deposits had increased significantly from $62 billion in March 2020 to $124 billion in March 2021, due to the impact of the COVID-19 pandemic on science and technology. Seeking higher investment returns, SVB had dramatically increased its holdings of long-term securities over 2021, accounting for them on a hold-to-maturity basis. However, the market value of these bonds decreased significantly through 2022 and into 2023 as the Federal Reserve raised interest rates to curb an inflation surge, causing unrealized losses on the portfolio.
Higher interest rates also raised borrowing costs throughout the economy, and some Silicon Valley Bank clients started pulling money out to meet their liquidity needs. To raise cash to pay withdrawals by its depositors, SVB announced on Wednesday, March 8 that it had sold over US$21 billion worth of securities, borrowed $15 billion, and would hold an emergency sale of some of its treasury stock to raise $2.25 billion. The announcement, coupled with warnings from prominent Silicon Valley investors, caused a bank run as customers withdrew funds totaling $42 billion by the following day, Thursday.
On the morning of March 10, the California Department of Financial Protection and Innovation seized SVB and placed it under the receivership of the Federal Deposit Insurance Corporation (FDIC). About 89 percent of the bank’s $172 billion in deposit liabilities exceeded the maximum insured by the FDIC. Two days after the failure, the FDIC received exceptional authority from the Treasury and announced jointly with other agencies that all depositors would have full access to their funds the next morning.
While many people, including President Biden, have stated that this unprecedented bailout would not use taxpayer money it is clear to anyone paying attention that printing more money to bail out another private company will only drive inflationary consequences while devaluing the dollar in an already precarious economic climate.
