Collapse Of Silicon Valley Bank
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On March 10, 2023,
Silicon Valley Bank Silicon Valley Bank (SVB) is a commercial bank division of First Citizens BancShares. The bank was previously the primary subsidiary of SVB Financial Group, a Public company, publicly traded bank holding company that had offices in 15 U.S. state ...
(SVB) failed after a
bank run A bank run or run on the bank occurs when many Client (business), clients withdraw their money from a bank, because they believe Bank failure, the bank may fail in the near future. In other words, it is when, in a fractional-reserve banking sys ...
, marking the third-largest bank failure in United States history and the largest since the
2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...
. It was one of three bank failures, along with Silvergate Bank and Signature Bank, in March 2023 in the United States. Seeking higher investment returns from its burgeoning deposits, SVB had dramatically increased its holdings of long-term
securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
since 2021, accounting for them on a hold-to-maturity basis. The market value of these bonds decreased significantly through 2022 and into 2023 as the
Federal Reserve The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of ...
raised
interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...
s to curb an inflation surge, causing unrealized losses on the portfolio. Higher interest rates also raised borrowing costs throughout the economy and some Silicon Valley Bank clients started pulling money out to meet their liquidity needs. To raise cash to pay withdrawals by its depositors, SVB announced on Wednesday, March 8 that it had sold over US$21 billion worth of securities, borrowed $15billion, and would hold an emergency sale of some of its
treasury stock A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market ("open market" including insiders' holdings). Stock repurchases are used as a tax efficien ...
to raise $2.25billion. The announcement, coupled with warnings from prominent Silicon Valley investors, caused a bank run as customers withdrew funds totaling $42billion by the following day. On the morning of March 10, the California Department of Financial Protection and Innovation seized SVB and placed it under the receivership of the
Federal Deposit Insurance Corporation The Federal Deposit Insurance Corporation (FDIC) is a State-owned enterprises of the United States, United States government corporation supplying deposit insurance to depositors in American commercial banks and savings banks. The FDIC was cr ...
(FDIC). An additional $100 billion were expected to be withdrawn during Friday. About 89 percent of the bank's $172billion in deposit liabilities exceeded the maximum insured by the FDIC. Two days after the failure, the FDIC received exceptional authority from the Treasury and announced jointly with other agencies that all depositors would have full access to their funds the next morning. Seeking to auction off all or parts of the bank, the FDIC reopened it on Monday March 13 as a newly organized
bridge bank A bridge bank is an institution created by a national regulator or central bank to operate a failed bank until a buyer can be found. While national laws vary, the bridge bank is usually established by a publicly backed deposit insurance organis ...
, Silicon Valley Bridge Bank, N.A. Although some characterized the government response as a
bailout A bailout is the provision of financial help to a corporation or country which otherwise would be on the brink of bankruptcy. A bailout differs from the term ''bail-in'' (coined in 2010) under which the bondholders or depositors of global syst ...
, the plan did not entail rescuing the bank, its management or shareholders, but rather making uninsured depositors whole from the proceeds of selling the bank's assets, without the use of taxpayer money. The collapse of SVB had significant consequences for
startup companies A startup or start-up is a company or project undertaken by an Entrepreneurship, entrepreneur to seek, develop, and validate a scalable business model. While entrepreneurship includes all new businesses including self-employment and businesses tha ...
in the U.S. and abroad, with many briefly unable to withdraw money from the bank. Other large technology companies, media companies, and wineries were also affected. For a number of founders and their venture capital backers, this was the bank of choice.


Background

SVB was a
commercial bank A commercial bank is a financial institution that accepts deposits from the public and gives loans for the purposes of consumption and investment to make a profit. It can also refer to a bank or a division of a larger bank that deals with whol ...
founded in 1983 and headquartered in
Santa Clara, California Santa Clara ( ; Spanish language, Spanish for "Clare of Assisi, Saint Clare") is a city in Santa Clara County, California. The city's population was 127,647 at the 2020 United States census, 2020 census, making it the List of cities and towns i ...
. At its collapse, SVB was the 16th largest bank in the U.S. by total assets and was heavily skewed toward serving companies and individuals from the technology industry. Nearly half of U.S.
venture capital Venture capital (VC) is a form of private equity financing provided by firms or funds to start-up company, startup, early-stage, and emerging companies, that have been deemed to have high growth potential or that have demonstrated high growth in ...
-backed healthcare and technology companies were financed by SVB. Companies such as
Airbnb Airbnb, Inc. ( , an abbreviation of its original name, "Air Bed and Breakfast") is an American company operating an online marketplace for short-and-long-term homestays, experiences and services in various countries and regions. It acts as a ...
,
Cisco Cisco Systems, Inc. (using the trademark Cisco) is an American multinational digital communications technology conglomerate corporation headquartered in San Jose, California. Cisco develops, manufactures, and sells networking hardware, s ...
,
Fitbit Fitbit is a product lining, line of wireless-enabled wearable technology, physical fitness monitors and activity trackers such as smartwatches, pedometers and monitors for heart rate, quality of sleep, and stairs climbed as well as related soft ...
,
Pinterest Pinterest is an American social media service for publishing and discovery of information in the form of digital Bulletin board, pinboards. This includes recipes, home, style, motivation, and inspiration on the Internet using image sharing. Pint ...
, and
Block, Inc. Block, Inc. (formerly Square, Inc.) is an American technology company and a financial services provider for consumers and merchants. Founded in 2009 by Jack Dorsey, it is the U.S. market leader in Point of sale, point-of-sale systems. As of 20 ...
have been clients of the bank. In addition to financing venture-backed companies, SVB was well known as a source of
private banking Private banking is a general description for banking, investment and other financial services provided by banks and financial institutions primarily serving high-net-worth individuals (HNWIs) – those with very high income or substantial asset ...
, personal credit lines, and mortgages to tech entrepreneurs, and specialized lending money to higher-risk new companies. Silicon Valley Bank required an exclusive relationship of those borrowing from the bank. Prior to Thursday March 9, 2023, SVB was in "sound financial condition", according to the California Department of Financial Protection and Innovation, though an increased number of short sellers began to target SVB earlier in the year. Employees received their annual bonuses on March 10, 2023, hours before the government took control of the company. As of the last
call report All regulated financial institutions in the United States are required to file periodic financial and other information with their respective regulators and other parties. For banks in the U.S., one of the key reports required to be filed is the ...
of the bank, filed on December 31, 2022, it held $209billion in total assets, with $175.5billion in total deposits, of which the bank estimated $151.6billion (86.4 percent) were uninsured.


Collapse


Losses

The bank's deposits increased from $62billion in March 2020 to $124billion in March 2021, benefiting from the
impact of the COVID-19 pandemic on science and technology The COVID-19 pandemic has affected innumerable scientific and technical institutions globally, resulting in lower productivity in a number of fields and programs. However, the impact of the pandemic has also led to the opening of several new ...
. Most of these deposits were invested in long-term
Treasury bonds United States Treasury securities, also called Treasuries or Treasurys, are government debt instruments issued by the United States Department of the Treasury to finance government spending as a supplement to taxation. Since 2012, the U.S. ...
as the bank sought a higher
return on investment Return on investment (ROI) or return on costs (ROC) is the ratio between net income (over a period) and investment (costs resulting from an investment of some resources at a point in time). A high ROI means the investment's gains compare favorab ...
than was available on shorter-term bonds. These long-term bonds fell in current market value as
interest rates An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...
rose during the
2021–2023 inflation surge Following the COVID-19 pandemic in 2020, a worldwide surge in inflation began in mid-2021 and lasted until mid-2022. Many countries saw their highest inflation rates in decades. It has been attributed to various causes, including pandemic-related ...
and they became less attractive as investments relative to newer bond issues. In April 2022, SVB's
chief risk officer The chief risk officer (CRO), chief risk management officer (CRMO), or chief risk and compliance officer (CRCO) of a firm or corporation is the executive accountable for enabling the efficient and effective governance of significant risks, and re ...
stepped down, and a successor was not named until January 2023—a period coinciding with the period of interest rate increases. At the end of 2022, the bank had a $117 billion bond portfolio, divided into a $91.3 billion held-to-maturity portfolio (meaning it was not
marked to market Mark-to-market (MTM or M2M) or fair value accounting is accounting for the "fair value" of an asset or liability based on the current market price, or the price for similar assets and liabilities, or based on another objectively assessed "fair" ...
and profits or losses would not be realized until maturity) and a $26 billion available-for-sale portfolio (which as the name implies was marked to market). At that point in time, its marked-to-market unrealized losses for securities held to maturity exceeded $15billion. The bank did not
hedge A hedge or hedgerow is a line of closely spaced (3 feet or closer) shrubs and sometimes trees, planted and trained to form a barrier or to mark the boundary of an area, such as between neighbouring properties. Hedges that are used to separate ...
against interest rate risk on that part of its bond portfolio, apparently for the same reason that most banks do not: the hedge itself would bounce around with the market, while the point of holding bonds to maturity is to hold them
at par In finance and accounting, par value means stated value or face value of a financial instrument. Expressions derived from this term include at par (at the par value), over par (over par value) and under par (under par value). Bonds A bond sellin ...
. Most banks minimize interest rate risk in their held-to-maturity portfolios by buying shorter-term bonds. The bank did hedge against interest rate risk on its available-for-sale portfolio by building up a portfolio of $15.2 billion of interest rate swaps by the end of 2021. At the same time, startup companies withdrew deposits from the bank to fund their operations as private financing became harder to come by. A series of layoffs in the technology sector that began in 2022 also caused depositors to draw down their savings. During the first half of 2022, the bank realized $517 million in gains by unwinding $11 billion of its interest rate swaps on its available-for-sale bond portfolio. By the end of the year, it had only $563 million in swaps protecting that portfolio. In early 2023, to raise needed cash to fund withdrawals, the bank sold all of its available-for-sale securities, realizing a $1.8billion loss. The bank was criticized for timing its announcement shortly after Silvergate Bank, which catered to
cryptocurrency A cryptocurrency (colloquially crypto) is a digital currency designed to work through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. Individual coin ownership record ...
users, started winding down its operations, and for not lining up private funding ahead of the announcement. Some banking experts said that the bank would have managed its risks better had it not been for the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), enacted in 2018 and supported by SVB CEO Greg Becker, which reduced the frequency and number of scenarios of required
stress testing Stress testing is a form of deliberately intense or thorough testing, used to determine the stability of a given system, critical infrastructure or entity. It involves testing beyond normal operational capacity, often to a breaking point, in orde ...
implemented under the
Dodd–Frank Wall Street Reform and Consumer Protection Act The Dodd–Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd–Frank, is a United States federal law that was enacted on July 21, 2010. The law overhauled financial regulation in the aftermath of the Great Reces ...
for banks with under $250billion in assets. The
Federal Reserve Bank of San Francisco The Federal Reserve Bank of San Francisco (informally referred to as the San Francisco Fed) is the Federal Reserve, federal bank for the twelfth district in the United States. The twelfth district is made up of nine western U.S. state, states— ...
did have discretion to annually examine any bank with $100 billion in assets. In implementing the regulatory changes, Federal Reserve Vice Chair Randal Quarles also changed the Federal Reserve's bank supervisory culture, allegedly making routine supervision less intense and more predictable.


Instability

A 2021 Federal Reserve review of the bank found several deficiencies in its risk management procedures. The bank failed to fix six citations issued by the Fed and was placed under a full supervisory review in July 2022. In the autumn, San Francisco Fed officials met with SVB senior leaders to discuss the bank's ability to raise cash in a crisis and possible exposure to losses as interest rates rose. Fed officials determined the bank was using flawed models that led SVB officers to incorrectly believe rising interest rates would increase the bank's interest revenue to substantially stabilize its financial condition. By early 2023, the Fed placed SVB in a "horizontal review" of its risk management procedures. In the week before the collapse,
Moody's Investors Service Moody's Ratings, previously and still legally known as Moody's Investors Service and often referred to as Moody's, is the bond credit rating business of Moody's Corporation, representing the company's traditional line of business and its histo ...
reportedly informed SVB Financial, the bank's
holding company A holding company is a company whose primary business is holding a controlling interest in the Security (finance), securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own Share ...
, that it was facing a potential double-downgrade of its
credit rating A credit rating is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government). It is the practice of predicting or forecasting the ability of a supposed debtor to pay back the debt or default. The ...
because of its unrealized losses. On March 8, 2023, SVB announced it had sold over $21billion worth of its investments, borrowed $15billion, and would hold an emergency sale of its stock to raise $2.25billion, including $500 million to
General Atlantic General Atlantic, legal main entity General Atlantic Service Company, L.P., (also known as "GA") is an American growth equity firm providing capital and strategic support for global growth companies, headquartered in New York, United States. T ...
.
JPMorgan Chase JPMorgan Chase & Co. (stylized as JPMorganChase) is an American multinational financial services, finance corporation headquartered in New York City and incorporated in Delaware. It is List of largest banks in the United States, the largest ba ...
and
Bank of America The Bank of America Corporation (Bank of America) (often abbreviated BofA or BoA) is an American multinational investment banking, investment bank and financial services holding company headquartered at the Bank of America Corporate Center in ...
turned down opportunities to acquire the bank. Despite the steps taken by the bank, Moody's downgraded SVB on March 8. Investors at several
venture capital Venture capital (VC) is a form of private equity financing provided by firms or funds to start-up company, startup, early-stage, and emerging companies, that have been deemed to have high growth potential or that have demonstrated high growth in ...
firms, including executives at
Peter Thiel Peter Andreas Thiel (; born 11 October 1967) is an American entrepreneur, venture capitalist, and political activist. A co-founder of PayPal, Palantir Technologies, and Founders Fund, he was the first outside investor in Facebook. According ...
's
Founders Fund Founders Fund is an American venture capital fund formed in 2005 and based in San Francisco. The fund has roughly $17 billion in total assets under management as of 2025. Founders Fund was the first institutional investor in Space Exploration T ...
,
Union Square Ventures Union Square Ventures (USV) is an American venture capital firm based in New York City. The firm has backed more than 130 startups, including Twitter, Etsy, Stripe, Coinbase, Zynga, Tumblr, Stack Overflow, Meetup, Kickstarter, MongoDB, ...
and
Coatue Management Coatue is an American technology-focused investment management firm led by founder and portfolio manager Philippe Laffont. Coatue invests in both public and private markets, with a focus on technology, media, telecommunications, as well as the c ...
urged their portfolio companies to withdraw their deposits from the bank, with Founders Fund withdrawing all of its funds from the bank by the morning of March 9. By the close of business that day, customers had withdrawn $42billion, leaving the bank with a negative cash balance of about $958million. Among the financial services companies receiving money from SVB customers were Brex, JPMorgan Chase,
Morgan Stanley Morgan Stanley is an American multinational investment bank and financial services company headquartered at 1585 Broadway in Midtown Manhattan, New York City. With offices in 42 countries and more than 80,000 employees, the firm's clients in ...
and
First Republic Bank First Republic Bank was a commercial bank and provider of wealth management services headquartered in San Francisco, California, United States. It catered to high-net-worth individuals and operated 93 offices in 11 states, primarily in New Yor ...
. The value of SVB's shares plummeted until a
trading halt A trading halt occurs in the U.S. when a stock exchange stops trading on a specific security for a certain time period. The halt, which can happen a few times a day per security if FINRA deems it, usually lasts for one hour, but is not limited t ...
was implemented on the morning of March 10. On February 27, SVB Financial Group CEO Greg Becker sold 12,451 shares of company stock, worth $3.6million, through an executive trading plan that he filed with the SEC under Rule 10b5-1 on January 26. The rule has been criticized as a loophole allowing for
insider trading Insider trading is the trading of a public company's stock or other securities (such as bonds or stock options) based on material, nonpublic information about the company. In various countries, some kinds of trading based on insider informati ...
. Beginning April 1, the SEC will require a minimum 90-day cooling period for most executive trading plans.


Receivership

On the morning of March 10, examiners from the
Federal Reserve The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of ...
and the
Federal Deposit Insurance Corporation The Federal Deposit Insurance Corporation (FDIC) is a State-owned enterprises of the United States, United States government corporation supplying deposit insurance to depositors in American commercial banks and savings banks. The FDIC was cr ...
(FDIC) arrived at the offices of SVB to assess the company's finances. Several hours later, the California Department of Financial Protection and Innovation seized SVB citing inadequate liquidity and insolvency, and placed it into the receivership of the FDIC. The failure of SVB was the largest by assets of any bank since the
2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...
and the second-largest failure of an FDIC-insured bank. According to regulatory reports as of December 31, 2022, uninsured deposits were estimated to represent 89percent of total deposits at the bank. With no other bank immediately offering to assume or guarantee them, the FDIC organized a Deposit Insurance National Bank of Santa Clara (DINB) to re-open the bank's branches the following Monday and enable access to insured deposits only. It announced that it would begin paying dividends for uninsured funds within the following week as SVB's assets were liquidated. Moody's Investor Service projected a recovery rate for uninsured depositors of 80–90 percent. The FDIC notified Silicon Valley Bank employees that they would be let go in 45 days' time; in the meantime, it offered salaried employees a 50% raise and hourly employees double pay for any overtime. The
Federal Reserve Bank of San Francisco The Federal Reserve Bank of San Francisco (informally referred to as the San Francisco Fed) is the Federal Reserve, federal bank for the twelfth district in the United States. The twelfth district is made up of nine western U.S. state, states— ...
stated that the bank's CEO Greg Becker was no longer on its board of directors. The simultaneous failures of SVB and New York's Signature Bank raised concern about the condition of other regional banks, with particular attention to
First Republic Bank First Republic Bank was a commercial bank and provider of wealth management services headquartered in San Francisco, California, United States. It catered to high-net-worth individuals and operated 93 offices in 11 states, primarily in New Yor ...
and
Western Alliance The North Atlantic Treaty Organization (NATO ; , OTAN), also called the North Atlantic Alliance, is an intergovernmental transnational military alliance of 32 member states—30 European and 2 North American. Established in the aftermath ...
. Faced with the possibility of a broader loss of confidence, on March 12 the Treasury granted the FDIC an exception allowing it to guarantee the uninsured deposits of both failed banks and to cover the expense through special assessments on other member banks. On March 13 the FDIC transferred SVB assets to a new
bridge bank A bridge bank is an institution created by a national regulator or central bank to operate a failed bank until a buyer can be found. While national laws vary, the bridge bank is usually established by a publicly backed deposit insurance organis ...
, Silicon Valley Bridge Bank, N.A., and appointed Tim Mayopoulos as CEO. The bridge bank consolidated insured and uninsured deposits into a single institution, making it more attractive to prospective buyers. There is a dispute about whether the U.S. government's guarantee to insure depositors in full, rather than just the $250,000 per account protected by law, qualifies as a bailout. President
Joe Biden Joseph Robinette Biden Jr. (born November 20, 1942) is an American politician who was the 46th president of the United States from 2021 to 2025. A member of the Democratic Party (United States), Democratic Party, he served as the 47th vice p ...
denied the term bailout applies in this particular case. Treasury Secretary
Janet Yellen Janet Louise Yellen (born August 13, 1946) is an American economist who served as the 78th United States secretary of the treasury from 2021 to 2025. She also served as chair of the Federal Reserve from 2014 to 2018. She was the first woman to h ...
had already ruled out bailing out SVB. Silicon Valley Bank's overseas subsidiaries held $13.9 billion in deposits. The
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker and debt manager, and still one ...
issued a statement that it sought a court order to place the United Kingdom subsidiary of the bank into a Bank Insolvency Procedure.
Shanghai Pudong Development Bank Shanghai Pudong Development Bank, branded as Pufa Bank in Chinese and SPD Bank in English, is a city-owned joint-stock commercial bank. It was established in 1993 and owned by the Shanghai Municipal Government. Shanghai Pudong Development Ban ...
issued a statement that its joint operations with SVB, chaired by its own Shanghai-based chairman, were not affected by the collapse as of March 11. Canadian regulator
Office of the Superintendent of Financial Institutions The Office of the Superintendent of Financial Institutions (OSFI; , BSIF) is an independent agency of the Government of Canada reporting to the Minister of Finance created "to contribute to public confidence in the Canadian financial system". ...
(OSFI) temporarily seized control of SVB Canada on March 12. On March 15, OSFI took permanent control of the bank and announced it would restructure SVB Canada to a new bridge bank to be created by the FDIC, after the regulator was unable to find a buyer. An initial auction of Silicon Valley Bank assets on March 12 attracted a single bid that was not from a bank, after
PNC Financial Services The PNC Financial Services Group, Inc. is an American bank holding company and financial services corporation based in Pittsburgh, Pennsylvania. Its banking subsidiary, PNC Bank, operates in 27 states and the District of Columbia, with 2,629 ...
and
RBC Bank RBC Bank is the trading name of RBC Bank (Georgia), N.A., the United States–based retail banking division of the Royal Bank of Canada (RBC) which is targeted toward Canadian snowbirds, expatriates, and frequent tourists. Despite its limited re ...
backed away from making offers. Bank of America, JPMorgan Chase, and
Goldman Sachs The Goldman Sachs Group, Inc. ( ) is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered in Lower Manhattan in New York City, with regional headquarters in many internationa ...
all declined to make offers. The FDIC canceled the auction, scheduling a second to attract bids from major banks, after the systemic risk exception was granted. Mayopoulos urged venture capitalists and startups to keep their deposits in the bridge bank, apparently to improve its financial condition, and suggested that customers return some of the deposits they had recently pulled out of the bank as part of a diversification strategy. A group of venture capitalists called for depositors to keep at least half of their capital in the bank. The seizure of Silicon Valley Bank's assets severely disrupted SVB Financial Group's operations. The holding company was locked out of its Santa Clara headquarters, which were shared with the bank, forcing it to move its headquarters to its New York City offices. The holding company, bridge bank, and FDIC are discussing how to reorganize payroll systems. All of SVB Financial Group's employees have been on the payroll of Silicon Valley Bank, not SVB Financial Group, while the parent company has been providing
employee benefits Employee benefits and benefits in kind (especially in British English), also called fringe benefits, perquisites, or perks, include various types of non-wage compensation provided to an employee by an employer in addition to their normal wage o ...
to all Silicon Valley Bank employees. Some employees had split their time between the two companies. SVB Financial Group began exploring a potential sale of the bank's sister companies SVB Capital and SVB Securities. The latter's founder, Jeffrey Leerink, has expressed interest in buying back the firm. However, the finances of these companies are deeply intertwined with Silicon Valley Bank, which could complicate any sale. The company filed
Chapter 11 bankruptcy Chapter 11 of the United States Bankruptcy Code ( Title 11 of the United States Code) permits reorganization under the bankruptcy laws of the United States. Such reorganization, known as Chapter 11 bankruptcy, is available to every business, w ...
one week after the bank's failure. A group including
Centerbridge Partners Centerbridge Partners, L.P. is a multi-strategy private investment firm focused on leveraged buyouts and distressed securities. The firm manages over $56 billion of assets
,
Davidson Kempner Capital Management Davidson Kempner Capital Management LP (often known by the short form Davidson Kempner) is a global institutional alternative investment management firm with over $36 billion in assets under management. Davidson Kempner is headquartered in New Yor ...
, and
PIMCO Pacific Investment Management Company LLC (PIMCO) is an American investment management firm. While it has a specific focus on active fixed income management worldwide, it manages investments in many asset classes, including fixed income, share ca ...
reportedly bought a stake in the company in anticipation of the bankruptcy. According to FDIC chairman Martin J. Gruenberg, the estimated cost to the Deposit Insurance Fund to cover the bank's collapse was $20billionincluding $18billion to cover uninsured deposits.


Acquisition

HSBC UK HSBC UK Bank plc is a British multinational banking and financial services organisation based in Birmingham, England. It is a wholly owned subsidiary of the global HSBC banking and financial group, which has been headquartered in London since ...
announced on March 13, 2023, that it had agreed to acquire Silicon Valley Bank UK for £1, at no cost to taxpayers and with depositors fully protected. On March 26, 2023, the FDIC announced that
First Citizens BancShares First Citizens Bancshares, Inc. is a bank holding company based in Raleigh, North Carolina and one of the largest banks in the United States. Its primary subsidiary is First Citizens Bank, which operates over 500 branches in 23 states. A second ...
will acquire the commercial banking business of SVB. As part of the deal, First Citizens will buy around $119billion in deposits and $72billion of SVB's loans discounted by $16.5billion, while around $90billion of SVB's securities will continue to remain in receivership. The FDIC received about $500million-worth of equity appreciation rights linked to First Citizens' shares. SVB's 17 branches reopened as a division of First Citizens Bank the next day, with all SVB depositors becoming depositors of First Citizens. SVB Private was initially going to be auctioned separately but First Citizens acquired the business along with SVB. First Citizens was the 30th-largest bank in the United States, in terms of assets, at the end of 2022. After the acquisition, it is set to enter the top 20.


Effects

Experts initially did not expect SVB's collapse to pose a
systemic risk In finance, systemic risk is the risk of collapse of an entire financial system or entire market, as opposed to the risk associated with any one individual entity, group or component of a system, that can be contained therein without harming the ...
to the U.S. financial system. However, although experts think these effects are temporary, the bank's collapse created hardships among some tech startups, and companies holding significant uninsured deposits and low cash flow faced significant risks.


Customers

Many
startups A startup or start-up is a company or project undertaken by an Entrepreneurship, entrepreneur to seek, develop, and validate a scalable business model. While entrepreneurship includes all new businesses including self-employment and businesses tha ...
were unable to retrieve money, resulting in companies taking out loans to make
payroll A payroll is a list of employment, employees of a company who are entitled to receive compensation as well as other work benefits, as well as the amounts that each should obtain. Along with the amounts that each employee should receive for time ...
. Because California state law requires employees to be paid within a certain number of days, continued inability to access deposits could have caused a large number of startups to
furlough A furlough (; from , "leave of absence") is a temporary cessation of paid employment that is intended to address the special needs of a company or employer; these needs may be due to economic conditions that affect a specific employer, or to thos ...
workers, reduce their workforce through
layoff A layoff or downsizing is the temporary suspension or permanent termination of employment of an employee or, more commonly, a group of employees (collective layoff) for business reasons, such as personnel management or downsizing an organization ...
s, or shut down entirely. The bank's collapse also reduces available funding for startups on the
venture debt Venture debt or venture lending (related: "venture leasing") is a type of debt financing provided to venture-backed companies by specialized banks or non-bank lenders to fund working capital or capital expenses, such as purchasing equipment. Ventu ...
market, which has grown in importance as venture capital firms have dramatically scaled back their investments. E-commerce company
Etsy Etsy, Inc. is an American e-commerce company with an emphasis on the selling of handmade or vintage items and craft supplies. These items fall under a wide range of categories, including jewelry, bags, clothing, home decor, religious items, furni ...
was forced to delay seller payouts; the company used SVB to send out deposits to some sellers. The bank's collapse coincided with the beginning of the annual, startup-oriented
South by Southwest Interactive South by Southwest (SXSW) is an annual conglomeration of parallel film, interactive media, and music festivals and conferences organized jointly that take place in mid-March in Austin, Texas. It began in 1987 and has continued growing in both s ...
conference in
Austin, Texas Austin ( ) is the List of capitals in the United States, capital city of the U.S. state of Texas. It is the county seat and most populous city of Travis County, Texas, Travis County, with portions extending into Hays County, Texas, Hays and W ...
. Aside from some disruption caused by SVB credit cards, attendees maintained an air of calm during the event. In the days after the collapse, startup founders and other customers lined up outside bank branches in Silicon Valley and San Francisco, seeking to withdraw their deposits or learn the status of their wire transfers. Many technology entrepreneurs regained access to their deposits on March 13. In a
Securities and Exchange Commission The United States Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street crash of 1929. Its primary purpose is to enforce laws against market m ...
(SEC) filing, streaming media company Roku, Inc. revealed that around a quarter of the company's cash reserves—$487million—were held by SVB. Other companies affected by the collapse include video game developer
Roblox Corporation Roblox Corporation ( ) is an American video game developer based in San Mateo, California. Founded in 2004 by David Baszucki and Erik Cassel, the company is the developer of Roblox, which was released in 2006. , the company employs over 2,400 ...
, video hosting service
Vimeo Vimeo ( ) is an American Online video platform, video hosting, sharing, and services provider founded in 2004 and headquartered in New York City. Vimeo focuses on the delivery of high-definition video across a range of devices and operates on a ...
, and payroll processor, Rippling. More than 1,500
climate change Present-day climate change includes both global warming—the ongoing increase in Global surface temperature, global average temperature—and its wider effects on Earth's climate system. Climate variability and change, Climate change in ...
–related technology startups had taken out loans or had lines of credit with Silicon Valley Bank. The failure came at a sensitive time when many such startups were scaling up to meet expected demand from the
Inflation Reduction Act of 2022 The Inflation Reduction Act of 2022 (IRA) is a United States federal law which aims to reduce the federal government budget deficit, lower prescription drug prices, and invest in domestic energy production while promoting clean energy. It was ...
. Outside the technology startup space,
Vox Media Vox Media, Inc. is an American mass media company founded in Washington, D.C. with operational headquarters in Lower Manhattan, New York City. The company was established in November 2011 by CEO Jim Bankoff and Trei Brundrett to encompass ''S ...
and
BuzzFeed BuzzFeed, Inc. is an American Internet mass media, media, news and entertainment company with a focus on digital media. Based in New York City, BuzzFeed was founded in 2006 by Jonah Peretti and John Seward Johnson III, John S. Johnson III to ...
had its cash concentrated at the bank, and Vox Media saw its SVB-issued credit cards stop working. The
California wine California wine production has a rich viticulture history since 1680 when Spanish Jesuit missionaries planted ''Vitis vinifera'' vines native to the Mediterranean region in their established missions to produce wine for religious services. ...
industry was also affected by SVB's collapse, since it was a leading regional winery banker. Some
Oregon wine The state of Oregon in the United States has established an international reputation for its production of wine, ranking fourth in the country behind California, Washington, and New York. Oregon has several different growing regions within th ...
ries were also affected. The bank's premium wine division had about $1.1 billion in outstanding loans to about 400 clients. California Governor
Gavin Newsom Gavin Christopher Newsom ( ; born October 10, 1967) is an American politician and businessman serving since 2019 as the 40th governor of California. A member of the Democratic Party (United States), Democratic Party, he served from 2011 to 201 ...
's wine companies were among the bank's clients. Businessman Mark Cuban reportedly had millions in the bank, along with his side venture Cost Plus Drugs. Since 2002, the bank had made $2.7 billion in loans and investments, including $1.6 billion in loans since 2014, to build nearly 10,000 units of affordable housing in Silicon Valley and San Francisco, as well as affordable housing in Massachusetts (from its 2021 acquisition of Boston Private). The collapse left 11 projects in the San Francisco Bay Area in limbo, plus two more in Los Angeles and the Central Valley (California), Central Valley. Housing advocates predicted delays and difficulty assembling funding. Some nonprofit organizations expect to deal with fallout from the bank's collapse for months. As a legacy of SVB's Boston Private acquisition, it provided free banking services to many nonprofits in San Mateo County, California, who have needed to redirect donations to alternative bank accounts. Ahmad Thomas, CEO of the Silicon Valley Leadership Group, of which the bank was a member, described the failure as a setback for the San Francisco Bay Area's startup ecosystem and noted that it would be difficult to replicate the bank's business model.


Shareholders

Silicon Valley Bank's holding company, SVB Financial Group, was a component of the S&P 500. At the time of the collapse, its largest shareholders included The Vanguard Group, BlackRock, and State Street Corporation, which owned the stock in large exchange traded funds that track the performance of S&P 500. The South Korean National Pension Service owned 100,000 shares in SVB's holding company, SVB Financial Group. CalPERS (California state pension fund) held about $67 million in bonds to the bank, or less than two percent of one percent of total investments, as of June 2022. On March 13, shares of similar regional banks, including
First Republic Bank First Republic Bank was a commercial bank and provider of wealth management services headquartered in San Francisco, California, United States. It catered to high-net-worth individuals and operated 93 offices in 11 states, primarily in New Yor ...
, Western Alliance Bancorporation, and PacWest Bancorp plummeted.


Financial system

Market capitalization of U.S. banks lost a combined $100billion in two days and European banks lost $50billion. SVB's losses highlighted the challenge that banks could face as interest rate increases reduced the market value of bonds that they purchased under low-rate policies. Some companies have sought safety with larger commercial banks, transferring their deposits out from regional banks similar to Silicon Valley Bank, raising concerns about further instability in the banking sector. Several banks, such as
First Republic Bank First Republic Bank was a commercial bank and provider of wealth management services headquartered in San Francisco, California, United States. It catered to high-net-worth individuals and operated 93 offices in 11 states, primarily in New Yor ...
and Western Alliance Bancorporation, issued press releases seeking to calm investors. Despite these concerns, banking experts believe that other banks will remain stable as SVB was overly specialized in providing banking to a risky sector of the economy, and financial regulations have strengthened since the
2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...
, which preceded the Great Recession. SVB had, in 2021, reached the threshold under the Dodd–Frank Wall Street Reform and Consumer Protection Act, Dodd-Frank Act requiring it to submit a resolution plan ("living will") to the FDIC, which it did the following year. It had not participated in Stress test (financial), periodic stress testing under the act, as the threshold for that requirement had been raised in 2018 under EGRRCPA; SVB's chief executive was among those requesting the change. On March 12, 2023, Signature Bank was also closed, being taken into possession by the New York State Department of Financial Services. Following the bank failures, the Federal Reserve announced the creation of a Bank Term Funding Program to shore up liquidity for other at-risk banks. Circle (company), Circle, a peer-to-peer payments technology company that issues the stablecoin USD Coin (USDC), attested that SVB is one of the six banking partners used by the company to manage its cash reserves for USDC, with $3.3 billion (approximately 8%) of its cash reserves held there. USDC's price fell below its US$1 pegged exchange rate during trading on March 10 and 11, causing Coinbase to halt conversions between USDC and U.S. dollars. USDC had recovered most of the losses after Circle assured investors that the peg would remain honored. Investors and economists believed that the SVB collapse and other recent bank failures might prevent a previously expected History of Federal Open Market Committee actions#Historical actions, Federal Reserve interest rate increase on March 22. However, a rate increase was still approved. The failure complicates an ongoing lobbying effort by large banks against the Federal Reserve's requirement that they hold cash equivalents to government-backed securities, such as the Treasury bonds that Silicon Valley Bank invested in.


Legal actions

On April 28, the Federal Reserve Board of Governors released a postmortem investigation by Vice Chair for Supervision Michael Barr (Treasury official), Michael Barr into supervision and regulation of the bank. It focused on lax oversight of SVB during the tenure of his predecessor, Randal Quarles, and called for a reevaluation of the rules for mid-sized banks. The U.S. Securities and Exchange Commission and United States Department of Justice, U.S. Department of Justice have reportedly opened investigations into the bank's financial disclosures and executives' recent trading plans. On March 13, an SVB shareholder filed a Securities Class Action against the company in the United States District Court for the Northern District of California, U.S. District Court for the Northern District of California, alleging fraud for false statements made by executives and the bank. Senator Elizabeth Warren of Massachusetts introduced legislation, cosponsored by about 50 Democrats in the Senate and House of Representatives, that would roll back some provisions of the Economic Growth, Regulatory Relief, and Consumer Protection Act, EGRRCPA, including regular stress testing. The United States Senate Committee on Banking, Housing, and Urban Affairs, Senate Committee on Banking, Housing, and Urban Affairs held a hearing on March 28 regarding the bank failures that focused on the Federal Reserve's oversight of banks. Former CEO Gregory W. Becker did not attend the hearing; Senators Sherrod Brown and Tim Scott have asked him to appear before the committee at a later hearing.


Reactions


Official responses

U.S. President
Joe Biden Joseph Robinette Biden Jr. (born November 20, 1942) is an American politician who was the 46th president of the United States from 2021 to 2025. A member of the Democratic Party (United States), Democratic Party, he served as the 47th vice p ...
discussed the collapse with California Governor
Gavin Newsom Gavin Christopher Newsom ( ; born October 10, 1967) is an American politician and businessman serving since 2019 as the 40th governor of California. A member of the Democratic Party (United States), Democratic Party, he served from 2011 to 201 ...
on March 11. In televised remarks from the White House before markets opened on March 13, Biden expressed confidence in the resilience of the banking system, pledged that the government would ensure the availability of deposits without rewarding investors with taxpayer funds, and promised to hold bank executives accountable and propose rule changes to prevent future failures. National Credit Union Administration board members emphasized the safety of the Credit unions in the United States, credit union system in contrast to the banking system, but reiterated the importance of effective risk management, including the use of interest rate derivatives, and urged Congress to strengthen the Central Liquidity Facility. Israeli Prime Minister Benjamin Netanyahu pledged to take steps to help Israeli technology companies get through the liquidity crisis. Indian IT minister Rajeev Chandrasekhar met with companies to assess the effect on India's startup community. UK Prime Minister Rishi Sunak, Japanese Chief Cabinet Secretary Hirokazu Matsuno, and South Korea's Financial Services Commission (South Korea), Financial Services Commission each downplayed any systemic risk to their countries' financial sectors.


Debate over government intervention

A group of 599 venture capitalists, including Garry Tan and David O. Sacks, along with hedge fund manager Bill Ackman and California State Senator Scott Wiener, called for a government intervention to protect uninsured depositors. Representatives Ruben Gallego of Arizona and Eric Swalwell of California called for depositors to be made whole, while Representatives Ro Khanna and Brad Sherman of California called on the United States Department of the Treasury, Treasury Department and FDIC to affirm that depositors would be protected so they could make payroll. Khanna pointed to the 1991 collapse of the Bank of New England as precedent for rescuing a regional bank. Representative Matt Gaetz of Florida and Republican presidential candidates Nikki Haley and Vivek Ramaswamy expressed opposition to any taxpayer-funded bailout of the bank. Ramaswamy suggested that the FDIC's deposit insurance limit be raised instead. San Jose Mayor Matt Mahan also called the $250,000 limit "arcane". Governor Newsom, Senator Kyrsten Sinema of Arizona, and Representative Anna Eshoo of California applauded the FDIC's announcement that it would protect depositors without affecting taxpayers via the Bank Term Funding Program. Mayor Mahan criticized the federal government's response to the bank's failure as slow and indicative of its misunderstanding of Silicon Valley startups' contribution to the national economy. Senators Elizabeth Warren of Massachusetts and Bill Hagerty of Tennessee criticized regulators for protecting large depositors, including some of the venture capital firms that triggered the bank run. Republican lawmakers and financial policy experts criticized the emergency actions as a bailout that could create a moral hazard at other banks. Senator J. D. Vance of Ohio questioned whether the federal government would have taken similar action for a smaller bank or credit union. Economist Paul Krugman compared the failure and resulting government action to the savings and loan crisis. Economist Dean Baker contrasted the broad agreement behind rescuing relatively sophisticated Silicon Valley business proprietors with the objections over moral hazard and personal responsibility to President Biden's Student loans in the United States, student loan forgiveness program. San Jose Chamber of Commerce CEO Derrick Seaver said any moral hazard was worth staving off the potential risk of allowing depositors to go unprotected. According to some experts, the government's quick reaction to the failure of Silicon Valley Bank, which had been viewed as having little significance outside of the technology sector until its failure, showed a fragile system addicted to injections of official support. Senator Warren, Representative Khanna, and Mayor Mahan called for earnings from CEO Greg Becker's recent sale of SVB shares to be Clawback, clawed back and returned to depositors. Representative Eshoo criticized the last-minute bonuses given to bank employees as "highly offensive".


Debate about causes

Michael Barr, vice chair for supervision at the Federal Reserve, stated during Senate testimony that it was a "textbook case of bank mismanagement". He testified that "SVB failed because the bank's management did not effectively manage its interest rate and liquidity risk, and the bank then suffered a devastating and unexpected run by its uninsured depositors in a period of less than 24 hours". He also said that Federal Reserve supervisors had begun issuing warnings as early as November 2021, and that the bank failed to take the necessary actions to correct the issues in a timely manner. An official report from the FDIC and Federal Reserve noted deregulation and reduced enforcement of remaining regulations allowed mismanagement of the bank to cause its failure. Cryptocurrency proponents cited the collapse in support of a decentralized monetary system. Others in the tech sector proposed that recent events in the cryptocurrency business, such as the bankruptcy of FTX and the exit of cryptocurrency-focused banks, had conditioned depositors to panic and noted that the FDIC's limited guarantee had no parallel in cryptocurrency. Senator Warren, Representative Khanna, and Senator Bernie Sanders of Vermont argued that the bank's failure could have been avoided by the stress testing that was required of banks of SVB's size until the passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act, EGRRCPA; they called for the law to be repealed and criticized Becker for having supported it. Warren and Senator Richard Blumenthal of Connecticut asked the Department of Justice and Securities and Exchange Commission to investigate whether senior bank executives had violated any laws. Senator John Kennedy (Louisiana politician), John Kennedy of Louisiana criticized regulators for lax oversight of the bank. The Bank Policy Institute, which represents large banks, contended that the failures of SVB and Signature Bank were primarily caused by failures of management and supervision, rather than regulation, and stressed its members' resiliency. Several Republicans and conservative commentators argued that the bank failed because it was "woke" and distracted by its workforce diversity efforts, which are typical of mid-sized and large banks in the U.S. Florida Governor Ron DeSantis, Representative Marjorie Taylor Greene of Georgia, and Tucker Carlson tied the bank's failure to its diversity, equity, and inclusion (DEI) program. Greene and Representative James Comer of Kentucky cited the bank's environmental, social, and corporate governance investment program. Senator Tim Scott of South Carolina implied that the San Francisco Fed overlooked risks at the bank due to a shared focus on climate change. Andy Kessler (author), Andy Kessler suggested that the presence of minorities and military veterans on the bank's board of directors served as a distraction. The ''New York Post'' blamed the DEI efforts of a manager at the UK subsidiary for the risks that arose in the U.S. An allegation spread in conservative media that SVB had donated over $73 million to the "BLM Movement & Related Causes," citing a database that had been created by a conservative organization to purportedly show "who funded the BLM riots." Analysis by ''Talking Points Memo'' found the database actually showed corporate donations to a variety of diversity programs that had no apparent relationship to the Black Lives Matter movement. The ''Associated Press'' also investigated claims that the collapse was caused by a "woke agenda" and found that there was no evidence to support the claims. Representative Nancy Mace of South Carolina criticized other members of Congress for politicizing the bank's failure and urged caution in making public comments that could affect the market.


See also

* Acquisition of Credit Suisse by UBS * Bank regulation in the United States * Deposit insurance * List of bank failures in the United States (2008–present)


References

{{2023 United States bank failures 2023 in California 2023 in economic history Bank failures in the United States, Silicon Valley Bank Economic history of California Economy of Santa Clara, California History of Silicon Valley March 2023 in the United States 2023 in technology 2023 in American politics 2023 controversies in the United States