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While it’s been said that those who can’t predict accurately then predict often to create a haze of distractions, the reality is these sudden seers were ambushed by reality along with the SVB depositors and investors. Entering into last week, SVB enjoyed almost universal “buy” ratings from Wall Street analysts, and its stock was up 33% from its lows last year. In the day leading up to the bank’s collapse, multiple prominent venture capitalists took to Twitter in particular and used their large platforms to raise alarms about the situation, sometimes typing in all caps.

That prompted prominent venture capital firms to advise the companies they invest in to pull their business from Silicon Valley Bank. This had a snowball effect that led a growing number of SVB depositors to withdraw their money too. Silicon Valley Bank met its demise 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.

Here’s how SVB went from being a massive success to being shut down by banking regulators, what we know so far, and what might happen next. Sadly, flagrant, cliched ideological opportunism cuts across both sides of the aisle. On the far right, extremist, self-styled anti-woke warriors such as Vivek Ramaswamy and Josh Hawley are absurdly blaming “ESG” and “woke-ism” for the demise of SVB.

The bank’s customers filled its coffers with deposits totaling well over $100 billion. That sounds like a lot – and it is – but that’s just 0.91% of all banking assets in the U.S. There is little risk that SVB’s failure will spill over to other banks. This is designed to prevent banks from being forced to sell government bonds, for example, that have been losing value due to rising rates.

  1. Customers withdrew more than $42 billion from SVB on Thursday, and similar moves at other banks could strain those firms even if they have stronger balance sheets.
  2. If SVB were able to hold those bonds for a number of years until they mature, then it would receive its capital back.
  3. But they pay out in full only when they’re held to maturity; otherwise, long-term bonds risk losing value if interest rates rise.
  4. While the bank’s 52-week high was just shy of $600 per share, it was trading for less than $40 in Friday’s premarket session.

But because the bank was also very concentrated with high exposure to one industry, that opened it up to risk. When things got bad for its non-diversified group of clients, it very quickly got bad for the bank. But the gossipy nature of Silicon Valley, and the fact that so many of these firms are entwined, made the possibility of a bank run higher for SVB than it was for other places. Right now, rumors are flying in WhatsApp groupchats full of founders scrambling for cash.

Other bank stocks fell Thursday as Silicon Valley Bank shares swooned. Banks lost a total of about $100 billion in market value over the last two days, according to Reuters. SVB, which noted that it would take a $1.8 billion loss on the bond sales, said it needed to take the steps because of higher interest rates and “elevated cash burn levels” by customers.

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Nearly all banks are protected by FDIC insurance, which covers up to $250,000 per depositor per account ownership category. If the FDIC can’t find a healthy buyer for the bank, it will pay depositors the money that was in their account. However, if your account balance exceeds $250,000, you may not recover the full amount. As a result relative vigor index of the Silicon Valley Bank collapse, the government announced the Bank Term Funding Program (BTFP), a program authorized by the Federal Reserve that offers loans to banks, credit unions, and other deposit institutions. While you may not pay for the losses directly with your tax dollars, some losses could ultimately trickle down.

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The Motley Fool has positions in and recommends Moody’s and SVB Financial. “The failure of [Silicon Valley Bank] could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash,” he noted. SVB is the most important capital provider to tech startups and the biggest supporter of the community. “The bank also made balance sheet management errors by putting too much money into long-term bonds, which became a problem when interest rates surged,” Wang said. Regulators stepped in to take control, with the California Department of Financial Protection and Innovation closing the bank and appointing the Federal Deposit Insurance Corporation (FDIC) as receiver.

But bonds have an inverse relationship with interest rates; when rates rise, bond prices fall. So when the Federal Reserve started to hike rates rapidly to combat inflation, SVB’s bond portfolio started to lose significant value. The initial market shock of Covid-19 in early 2020 quickly gave way to a golden period for startups and established tech companies, as consumers spent big on gadgets and digital services. “Yes, funding is a headwind for the industry,” they acknowledged, but emphasized that they didn’t believe at the time that there was a liquidity crunch facing the banking sector. The move caused a wider sell-off in stocks and sparked fears that other banks may be at risk of failure.


“If you are a startup company, you don’t look like a normal business,” says Sean Byrnes, a startup founder and investor who says he has used SVB for years. “Most banks, if you go to them and ask for a loan, they’ll laugh at you.” SVB was also often willing to work with founders who weren’t US citizens, which would be an obstacle for more traditional banks. The Federal Reserve has been raising interest rates from their record-low levels since last year in its bid to fight inflation.

Amid the bank collapse, it was not just Silicon Valley Bank whose stock price plummeted. The Fed’s rapid interest rate increases over the past year have helped to slow inflation. But the increases have also devalued bond holdings, like the kind SVB invested in by the billions and helped cause its collapse last week. Wells Fargo analyst Shaw also said other banks were hit by panic selling.

Did SVB receive a bailout?

Federal officials say that all customers of SVB will have full access to their deposits — even accounts that held more than $250,000, the limit of FDIC insurance. Accounts holding greater than that amount made up the vast majority of accounts at SVB. The move essentially guarantees the $175 billion that was in customer deposits at SVB. Among its clients were tech and tech-adjacent companies like Roku, Roblox and Vox Media. (It turns out that this concentration in the tech sector was key to its demise.) But it remained little known outside of tech circles — until this past week. Regulators announced the takeovers after what was effectively a run on Silicon Valley Bank late last week when depositors rushed to withdraw tens of billions of dollars worth of deposits.

What Happens to Your Money If the Bank Collapses?

The longer answer begins during in the pandemic, when SVB and many other banks were raking in more deposits than they could lend out to borrowers. The government is not saving SVB; it will stay collapsed – or wound up with remaining assets dispersed to creditors – unless a buyer can bring it back to life. There are, however, more immediate concerns for the technology sector. Financial futures, which allow investors to speculate on future price movements, rallied for the US technology sector in response to the guarantees. “It is possible today we found our Enron,” ‘Big Short’ investor Michael Burry said Thursday in a now-deleted Tweet, referencing the scandal-hit energy firm whose collapse came to symbolize the early-2000s stock-market crash. Brad Hargreaves, a startup founder who previously served on boards of companies that did business with SVB, said the bank was unusual in that often played a dual role as corporate and personal lender to CEOs.

It’s the largest failure of a financial institution since Washington Mutual in 2008 at the height of the financial crisis more than a decade ago. Bloomberg News reported on Saturday night that between 30% and 50% of the uninsured deposits could be returned as soon as Monday. SVB had tens of billions of dollars in agency mortgage-backed securities. Those assets are highly liquid, and could in theory be sold quickly with little loss. Regulatory reforms since the 2008 financial crisis have also made mortgage-backed securities much safer than the ones that contributed to financial stability issues back then. Another possibility is if another bank stepped up to buy part or all of SVB.