Story of the Week •
March 16th, 2023
Silicon Valley Bank Collapses After Bank Run
David Paul Morris/Bloomberg/Getty Images
The FDIC took control of Silicon Valley Bank on Friday, making it the second-largest bank to collapse in U.S. history.
The Details: Silicon Valley Bank catered primarily to technology startups, and collapsed this past week after customers attempted to withdraw $42 billion in one day.
The failure sparked fear across financial markets, leading President Biden to offer assurances that the banking system is safe and guaranteeing that all deposits would be made whole, even ones above the FDIC's $250,000 insurance cap.
Treasury Secretary Janet Yellen said SVB would not be bailed out by the federal government, with the focus being on depositors. Both the Department of Justice and the Securities and Exchange Commission opened investigations into the collapse.
Why Did It Collapse? Voices across the spectrum disagree on factors that potentially contributed to the collapse, but many agree that SVB's heavy investments in government bonds sparked the bank run.
As the Federal Reserve raised interest rates, bonds fell dramatically in value. Meanwhile, SVB's tech company-heavy customer base moved to withdraw money in droves amid industry instability, leading the bank to sell a portion of its bond portfolio at a loss.
To make up for the loss, SVB then announced it would sell additional stock to raise cash. This sparked panic among customers, leading to a bank run as customers withdrew money en masse.
Fallout: On Sunday, the FDIC took control of Signature Bank, a key bank in the cryptocurrency market. Meanwhile, Credit Suisse accepted a $54 billion lifeline from the Swiss National Bank after its stock price fell 30% in one day.
How The Media Covered It: Analysis across the spectrum highlighted SVB's heavy reliance on tech and Signature's heavy reliance on cryptocurrency as evidence of the collapses being isolated incidents with low risk of contagion to other banks.
Voices from left to right disagreed about other factors that led to the collapse — Trump-led deregulation, woke investment focuses, or others, leading to misleading narratives on the issue.
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Snippets from the Right
Missing the Signs at Silicon Valley Bank
National Review (opinion)
"Banks typically make money by lending out deposits at interest, but tech start-ups don’t borrow a lot of money from commercial banks, which was one reason why SVB had done well out of that market niche. But it was a niche on which it had become unhealthily dependent."
Congress Killed Silicon Valley Bank
The Daily Caller (opinion)
"Silicon Valley Bank made a bad bet — perhaps an unforgivable bet. SVB bet that Congress would control its spending addiction. Most Americans wouldn’t make that bet, and so they are justifiably angry. Americans would do well to direct their anger at Congress in order to drive positive change."
Snippets from the Left
Silicon Valley Bank collapse was driven by 'the first Twitter fueled bank run'
CBS News
"In the day leading up to the bank's collapse, multiple prominent venture capitalists took to Twitter in particular, and used their large platforms to raise alarms about the situation, sometimes typing in all caps. Some investors urged startups to rethink where they kept their cash."
How one bank’s collapse reflects a broader anxiety in Silicon Valley
Washington Post (opinion)
"With deposits rushing in during the pandemic, the bank had to invest more and more money in bonds, typically U.S. bonds. As interest rates spiked, bond prices declined. That would have been fine but for the bank’s sudden downturn in deposits. After rising robustly in 2021, deposits fell 13 percent in the first three quarters of 2022."
Snippets from the Center
How Silicon Valley Turned on Silicon Valley Bank
The Wall Street Journal
"The culprit wasn’t the kind of exotic derivatives and risk-taking that doomed banks in the 2008 financial crisis. Rather, it was a mismatch between deposits and assets—the building blocks of the vanilla business of commercial banking.'"
New SVB CEO Urges Top Venture Capital Clients To Move Deposits Back
International Business Times
"Mayopoulos told clients deposits at the bank were now among the safest of any U.S. banks or institutions, attendees at the meeting said. The new bank will honor existing loan facilities and lines of credit for its customers, easing widespread concern among many startups which have loan agreements with the bank, they added."
