Bank for
Venture Capitalist: Specialized in financing and banking for venture capital backed st
artup companies
Y Combinator: YC is the aggregator for start-ups Why was SVB important to the T
Skrill: Support establishing new start-ups ech Sector
1. SVB provided financing for about
half of all US venture-backed tec
hnology and healthcare compani
es.
2. SVB was a preferred bank for the
SILICON tech sector because they support
VALLEY BANK ed startup companies that not all
[16th US Largest Bank] banks would accept due to highe
r risks
[Assets: $ 209 B by
end of 2022] 3. The pandemic in 2020 was a hot
market for tech companies as co
nsumers spent big money on digi
Founded: 1983 tal services and electronics. Tech
companies had a large influx of c
ash, and SVB's services were nee
ded during this time to hold their
cash for business expenses, such
2020: New Strat-ups, heavy funding around
$ 217 B
2019: $ 61 2021: $ 2022: $
B 189 B 173.2 B
Interest Bearing Non- Interest
$ 92.4 B Bearing
$ 80.8 B
Reasons:
1. No Chief Risk Officer for 8 Mont
hs
2. For CFO of Lehman Brother is C Loan Govt LT 10 MBS
AO $ 73 B Bonds $ 80 B
3. Interest Rate increased from 0.2 $ 20 B [1.6%] [1.56%]
5% to 4.75%
Cause of Problem
1. Tweet of Byrne Hobart
2. SVB is Technically Insolvent
3. Capital : $ 15 B
4. VC Circle started talking about i
t
All depositors started reaching SVB
SVB has $ 13 B cash and sold $ 21
B instruments and incurred loss of
$2B
The News came out in the public do
main and created a BANK RUN
Lack of diversification
Silicon Valley Bank invested a large amount of bank deposits in long-term U.S. treasuries
and agency mortgage-backed securities. However, bonds and treasury values fall when i
nterest rates increase.
When the Federal Reserve hiked interest rates in 2022 to combat inflation, SVB's bond po
rtfolio started to drop. SVB would have recovered its capital if they held those bonds until
their maturity date.
Silicon Valley Bank used to lend out money in short durations. However, in 2021, they shi
fted to long-term securities such as treasuries for more yield, and they did not protect th
eir liabilities with short-term investments for quick liquidations. They were insolvent for
months because they could not liquidate their assets without a large loss.
When economic factors hit the tech sector, many bank customers withdrew money as ve
nture capital started drying up. SVB didn't have the cash on hand to liquidate these depo
sits 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
When SVB announced their $1.75 billion capital raising on March 8, people became alarm
ed the bank was short on capital. Word spread quickly on social media accounts such as
Twitter and WhatsApp inducing panic that the bank didn’t have enough funds. Customers
started to withdraw money in waves. SVB's stock plummeted by 60% on March 9 after its
capital raising announcement. Some people are saying the bank run was Twitter-fueled.
California regulators shut the bank down on March 10 and placed SVB under the FDIC.
Unlike personal banking, SVB's clients had much larger accounts. It didn't take long for m
oney to diminish during the bank run, with the escalating pace of withdrawals causing a s
nowball effect. Most customers had deposits more than the $250,000 FDIC limit.
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.
Who is affected by the collapse?
SVB stockholders and investors took a big hit because, unlike customers, they were not b
acked by FDIC on their investment.
Other issues include a lack of money from deposits for immediate expenses such as payr
oll. Large tech companies with significant cash in SVB include Etsy, Roblox, Rocket Labs a
nd Roku.
The FDIC insures most banks. However, the accounts were insured up to only $250,000.
With company accounts, this is not much, as they may spend millions in a month.
First Citizens Bank purchases Silicon Valley Bank
On March 26, 2023, FDIC announced First Citizens Bank will purchase Silicon Valley Bank
and assume the majority of its deposits and loans. As of March 10, Silicon Valley Bank re
ported nearly $167 billion in total assets and $199 billion in deposits. First Citizens Bank
will purchase about $72 billion in assets at a discounted rate of $16.5 billion. FDIC will re
main in control of nearly $90 billion in assets and securities in its receivership.
All 17 of Silicon Valley Bank’s branches will operate under Silicon Valley Bank, a division
of First Citizens Bank.
The FDIC also estimated that the SVB failure cost nearly $20 billion.
