The bank the Bay built
It was the second-largest bank collapse in American history—and it went down at fibre optic speed
Silicon Valley Bank (SVB), the bank for Bay Area tech startups, took a punt on interest rates staying low. They bought long-term bonds and hoped to profit. But interest rate hikes crippled the bank's capital base and left them almost insolvent. The firm's customers, most of whom had more than the $250,000 guarantee limit on deposit, panicked. They fled and tried to pull their money before others did.
It was an old-fashioned bank run, accelerated by the speed of digital banking. At the peak of the run, customers were pulling $500,000 per second, and the bank didn't have the money. This forced the regulator to step in and shut the bank. Within hours, the suits from the Federal Deposit Insurance Corporation (FDIC) had taken over.
The collapse wiped out shareholders, and bondholders will take buzzcuts. But that is not a failure of the financial system. Instead, the bank's bosses botched it, and a mismanaged business has gone bust.