In Friday’s newsletter we included a “quick cut” chart of Silicon Valley Bank’s share price — which was cratering amidst a rumor that the bank was insolvent. Within an hour of our newsletter being sent it was already out of date. The stream of withdrawals quickly turned into a flood, as depositors tried to retrieve $42bn from their accounts — nearly a quarter of the bank’s total — in a single day.
SVB’s collapse is the second-largest bank failure in American history, and the speed of the bank run left regulators scrambling over the weekend to limit any possible contagion. Yesterday, the US Treasury, Federal Reserve and FDIC stepped in to ensure all deposits at the failing bank would be backstopped and quickly accessible, as another major bank (Signature) also collapsed.
Part of the furniture
Formed in 1983, SVB had long been a partner to some of the most innovative companies in the world, providing banking services to half of all venture-backed tech and life sciences companies in the US. Deposits at SVB swelled to nearly $200bn during the pandemic, as venture funding hit record highs and startups had to put their cash somewhere. SVB’s critical error was to take much of that cash and buy mortgage bonds that offered a slightly higher rate of return — but locked the money up for much longer — a departure from its previous strategy that turned into a major problem when liquidity dried up.
Go deeper: Great analysis of what happened to SVB from Ben Thompson.