On March 10, 2023, Silicon Valley Bank (SVB) failed, making it the biggest lender to fail since the global financial crisis of 2007-09. With over USD 200 billion in assets, SVB's depositors were mainly from tech startups, and many had accounts holding more than the maximum insured by the Federal Deposit Insurance Corporation (FDIC), which is $250,000.
The collapse came after a run on the bank on Thursday, 09th March 2023, when the depositors initiated withdrawals exceeding USD 42 billion within hours. The FDIC that guarantees bank deposits up to USD 250,000 has said that the insured depositors would get paid within the week, and use the sale proceeds of SVB's assets to pay out the larger depositors.
According to Financial Times, at the end of 2022 SVB had estimated that almost 96 percent of its USD 173 billion deposits were not covered by the FDIC insurance scheme.
SVB's downfall was due to their investment in long-term bonds with low rates and a significant unhedged bet on interest rates staying low, leaving the bank insolvent. The bank's shareholders were wiped out, and bondholders faced significant losses.
Earlier on the 10th March 2023, SVB had given up its efforts to raise USD 2.23 billion in new funding to cover the losses on its bond portfolio, and had begun to look for a buyer to save the bank - as reported by Financial Times.
The consequences of SVB's failure will be widely felt, as the bank was the banker to a significant number of venture-backed tech companies, and raises serious questions on the regulatory inadequacy in the US banking industry.