Prior to its demise, Silicon Valley Bank SVB, formed in 1983, ranked as the 16th-largest bank in

the United States. They specialised in banking and finance for fledgling businesses with venture
capital backing, mostly in the technology sector. There were various tech leaders as well as
venture capital firms doing business.
Why did SVB matter to the IT sector?
SVB provided money to around half of all venture-backed technology and healthcare businesses
in the US. SVB was a preferred bank for the technology industry since they supported start-up
companies that other banks wouldn't accept due to greater risks.
As consumers spent a lot of money on gadgets and digital services during the pandemic in 2020,
this was a hot market for tech businesses. The services of SVB were required during this period
for IT businesses to keep their funds for operational costs like payroll. Much of these deposits
were invested by the bank, as banks often do.
What caused it to fall?
Numerous factors contributed to the failure, including a lack of diversification and a traditional
bank run, in which a large number of clients withdrew their savings at once out of concern
about the bank's stability. The majority of SVB's deposits were new businesses. Since tech was
in such great demand during the epidemic, they deposited huge sums of money from investors,
according to Jay Jung, founder and managing partner of Embark Advisors.
failing to diversify
Silicon Valley Bank made significant investments in long-term US treasuries and agency
mortgage-backed securities using bank deposits. However, when interest rates rise, the value of
bonds and treasuries decreases.

SVB's bond portfolio started to decline in 2022 when the Federal Reserve raised interest rates to
fight inflation. If SVB had kept the bonds until they were due to mature, it would have made its
capital back.

Previously, Silicon Valley Bank made short-term loans. Instead of using short-term assets to
cover their commitments in 2021, they switched to long-term securities like Treasury bonds in
order to increase yield. Because they were unable to sell their assets without suffering a
significant loss, they were insolvent for months.

Many bank clients withdrew money as economic considerations affected the IT industry as
venture funding began to decline. SVB lacked the funds necessary to dispose these deposits
because they were tied up in long-term investments. They started selling their bonds at a
significant loss, which caused distress to customers and investors.
Within 48 hours after disclosing the sale of assets, the bank collapsed.
Bank run
On March 8, when SVB announced that they were seeking $1.75 billion in capital, many started
to worry that the bank could run out of money. When word of the bank's lack of funds
immediately travelled on social media platforms like Twitter and WhatsApp, panic was sparked.
Waves of customers began to withdraw cash. On March 9, following the news of a capital
raising, SVB's shares fell by 60%. Some claim that Twitter was the cause of the bank heist.
On March 10, Californian officials closed the bank and transferred SVB to the FDIC.
Clients of SVB have substantially larger balances than those in personal banking. Money quickly
ran out during the bank run as a result of the withdrawals' quickening speed and snowball
effect. The majority of consumers had deposits that exceeded the $250,000 FDIC cap.
Many startups left money in their SVB primary account instead of using other accounts -- such
as a money market -- to pay expenditures. This means most of their working capital was mainly
in their SVB account, and they needed access to their deposits for payroll and bills.
By whom is the collapse felt?
Because they were not protected by the FDIC on their investment, unlike consumers, SVB
shareholders and investors suffered a severe loss.
Lack of funds from deposits for urgent needs like payroll is one of the other problems. Etsy,
Roblox, Rocket Labs, and Roku are a few large IT businesses that have a sizable investment in
SVB.
The FDIC provides coverage for most institutions. The entire insured amount for the accounts
was merely $250,000. When dealing with company accounts, where monthly spending may
reach millions, this amount seems little.

The Federal Reserve is doing what?