The Fall of Silicon Valley Bank

Silicon Valley Bank (SVB) was more than just a bank.

For years, it stood at the heart of the startup ecosystem in the United States, fueling innovation and offering financial lifelines to entrepreneurs and tech companies.

However, in early 2023, that image shattered. Practically overnight, SVB went from trusted institution to collapsed entity.

The fall shocked the financial world. It didn’t just raise questions.

It demanded answers—fast.

Why did a bank that worked so closely with some of the most cutting-edge companies fail so suddenly?

What went wrong, and what lessons can other institutions learn?

Let’s walk through this financial disaster and understand what really happened.

A Quick Rise to Power

Back in 1983, when SVB first opened its doors, it wasn’t a big player.

However, it quickly found its niche. While large banks hesitated to work with unproven startups, SVB leaned into that uncertainty.

By offering specialized loans and financial products, the bank built trust with venture capital firms and tech founders.

Before long, it became the go-to bank for startups.

It helped companies handle payroll, manage fundraising, and scale operations.

More importantly, it understood the fast-paced, risky nature of innovation.

As a result, tech companies flocked to SVB.

This strategy worked—until it didn’t.

Interest Rates Spark Trouble

SVB had grown fast, but that growth came with risks.

As more deposits flowed in, the bank needed a place to store that money.

Rather than keep it all in cash, SVB invested heavily in long-term government bonds and mortgage-backed securities.

At first, this seemed like a safe move.

After all, government bonds rarely default.

But there was a problem.

When interest rates began to rise sharply in 2022, the value of those older, lower-yield bonds dropped significantly.

Suddenly, SVB’s investment portfolio looked weak.

Now, that wouldn’t be a crisis if depositors left their money in the bank.

But that’s not what happened.

A Perfect Storm

As interest rates rose, venture capital funding dried up.

Many startups began burning through their cash reserves faster than expected. Naturally, they turned to their bank accounts to cover expenses.

Since SVB’s client base was heavily concentrated in tech, withdrawals became larger and more frequent.

Meanwhile, the bank had tied up a significant portion of its assets in long-term investments that had lost value. It couldn’t easily sell them without realizing massive losses.

And yet, it had to sell. It needed cash to meet withdrawal requests.

When SVB announced a multibillion-dollar loss from selling part of its bond portfolio, panic spread. Investors, startups, and depositors alike began to worry.

In an age of social media, fear spreads fast. Within 48 hours, tens of billions of dollars vanished from SVB accounts.

The bank simply couldn’t keep up.

The Collapse

On March 10, 2023, federal regulators stepped in and closed the bank.

Just like that, one of the most important financial institutions in Silicon Valley ceased to exist.

The speed of the collapse was almost unprecedented.

Even during the 2008 financial crisis, banks usually failed over weeks or months.

With SVB, it took days.

This led to immediate consequences.

Many startups faced the real risk of missing payroll.

Some companies considered laying off employees or even shutting down entirely.

The fear wasn’t just about one bank—it was about the stability of the entire innovation economy.

Government Response

In response, the U.S. government stepped in quickly.

Regulators made the unusual decision to guarantee all deposits, even those above the insured limit.

Their goal was clear: restore confidence and avoid contagion.

Thankfully, this move worked.

While the collapse was shocking, it didn’t lead to a broader banking crisis. Still, the questions remained.

Could this have been avoided?

And who was to blame?

Warning Signs Ignored

In hindsight, the red flags were clear. SVB had a highly concentrated customer base.

Nearly all its clients were from one industry—tech. That’s risky on its own.

Add to that the fact that the bank didn’t hedge effectively against interest rate changes, and you get a fragile system.

Worse, the bank didn’t act fast enough. As rates climbed, it should have adjusted its strategy.

It didn’t. Instead, it doubled down, hoping that rates would level off or fall. They didn’t.

Furthermore, many argue that regulators missed the warning signs too.

SVB had grown large enough that closer scrutiny was warranted.

However, changes in regulation years earlier had eased oversight for banks of its size. So, the risks went unchecked.

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