On Friday, March 10, the 16th largest bank in America, Silicon Valley Bank (SVB), collapsed. The banks’ closure sent waves of shock throughout the technology industry, Washington D.C., and Wall Street.
The failure of SVB is the largest U.S. bank failure since the global financial crisis of 2007.
The bank fell due to a loss of value, rising interest rates, and numerous big, uninsured depositors. SVB provided half of the country’s venture capital banking technologies, life-science companies, and more than 2,500 venture capital firms, according to their website.
SVB was unique in how it replied to the tech industry, start-up companies, and cryptocurrency to keep them going. The bank kept a small chunk of their deposits in cash and used the rest to buy long-term assets such as treasury bonds.
Long term investments tend to be low risk with steady returns when interest rates remain low. SVB had placed a significant portion of their liquid assets in these long term investments and relied on their returns for profit and security.
With The Federal Reserve looking to combat rapid inflation by raising interest rates, Silicon Valley’s once-safe investments began to fall apart. The elevation in inflation led many of their customers to withdraw, with the total amount of withdrawals settling around $42 billion.
To keep up with these withdrawals, the bank began to sell investments, resulting in a loss of revenue, and eventually leading to collapse.
Multiple large banks in the U.S. are also struggling in the wake of an evolving economy. First Republic Bank (FRC) and PacWest Bankcorp (PACW) halted temporarily on Monday, March 13, after their shares dropped 65% and 52%, respectively. Charles Schwab (SCHW) also dropped 7% in stock that same day.
SVB was reopened as a bridge bank on March 13 which allowed customers of the bank to access all of their money without having to pay any bailouts.
SVB was founded in 1983 and has branches in Israel, China, Ireland, Germany, India, Canada, and Denmark, as well as the United States. Financial Services Company HSBC announced on March 13 that it would buy Silicon Valley’s British subsidiary.
For those wanting to protect their money from potential bank failures in the future, The Treasury Department recommends opening multiple accounts and adding beneficiaries to your accounts to try and avoid a total loss of your money. If your money is uninsured, you will receive a receivership certificate amount for the uninsured funds from the Federal Deposit Insurance Corporation (FDIC).
