Silicon Valley Bank the collapse

The largest bank to have failed since 2008 and the 2nd largest bank to have failed in US history.   Silicon Valley Bank (SVB) was a bank that specialized in serving technology and innovation companies. It closed its doors in March 2023.

     Silicon Valley Bank served:

  • Technology companies: This includes companies of all sizes, from startups to established giants, across various tech subfields like software, hardware, internet, and telecommunications.
  • Life Sciences: Pharmaceutical and biotechnology companies, medical device manufacturers, and healthcare organizations were also major clients.
  • Venture Capital & Private Equity: SVB provided specialized services to investors financing these types of companies.
  • Premium Wine: This niche industry also benefited from SVB's unique understanding of their needs
  • Their clients even included AirBnb , Fitbit and Pintrest

Let's examine the factors that led to the downfall of this niche bank. While the Russia-Ukraine war and the pandemic played significant roles in its collapse, let's delve into the details.


Interest rates:


Inflation rate reached a peak of 9.1 percent after the Russia Ukraine war. As we have all heard the fed raised interest rates to curb inflation










in 2020 and 2021, SVB experienced prosperous years, benefiting from the ability to borrow money from the Fed at a very low interest rate of 0.08. This allowed them to provide loans to startups and still generate substantial profits.








Deposits in SVB also increased a lot from 2019 to 2021 the best years for SVB

The huge amount of deposits can be attributed to the high-interest rate provided by SVB to depositors. Bank of America provided  .96% whereas SVB provided 2.33% 





Silicon Valley Bank (SVB) faced challenges due to several factors:

Heavy investment in long-term bonds: SVB invested heavily in long-term Treasury bonds, offering low interest rates (around 1.56%). This locked up a significant amount of their money (over $90 billion) for an average of 10 years, making it difficult to access quickly.

Higher interest rates and falling demand: Rising interest rates set by the Federal Reserve caused the demand for loans and mortgage-backed securities to decrease. This led to a drop in the value of SVB's investments, with their mortgage-backed securities losing $15 billion in value (from $91 billion to $76 billion).

Limited liquidity: While these losses weren't realized unless SVB sold the bonds, a lack of available cash became an issue. Most of their funds were tied up in long-term investments, making it difficult to meet the demands of depositors who increasingly wanted to withdraw their money during the start-up winter. They started selling bonds which caused panic in investors and depositors that SVB was not liquid

Startups pulling out funds: Panicked by the news of SVB's situation and concerned about their own deposits, startups and investors like Peter Thiel began withdrawing their money from the bank. This created a domino effect, with more depositors and investors fearing insolvency and pulling out their funds, causing SVB's share price to plummet.

Panic-driven collapse: Ultimately, it wasn't the initial investment losses but the panic and subsequent mass withdrawals that caused SVB's collapse.













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