Silicon Valley Bank (SVB) recently celebrated making Forbes magazine's annual ranking of the best banks in America. In a tweet on Monday, the bank expressed its pride in being on Forbes' list for the fifth consecutive year, and for being named to the publication's inaugural Financial All-Stars list.
However, just five days later, the bank's tweet would take on a bitter irony when regulators took control of the bank due to its inability to meet withdrawal demands from depositors.
Silicon Valley Bank's collapse was the largest bank failure since Washington Mutual in 2008 and the second-largest in U.S. history. The bank's inability to meet withdrawal demands caused a run on the bank, which triggered the California Department of Financial Protection and Innovation (DFPI) to take over the bank's operations after it went insolvent. The bank's assets have since been turned over to the Federal Deposit Insurance Corporation (FDIC), which will begin returning Silicon Valley Bank customers' insured deposits on Monday.
Before the shutdown, Silicon Valley Bank was the nation's 16th largest lender. The bank's collapse has sent shockwaves through the tech industry, as it was a major financier of tech startups. Hundreds of companies were affected by the shutdown, including retailer Camp and coffee company Compass Coffee, who say they have not been able to access their deposits.
As the Federal Reserve raised interest rates, bond prices fell, which reduced the market value of Silicon Valley Bank's portfolio. Bloomberg News reported Silicon Valley Bank had "mark-to-market losses in excess of $15 billion at the end of 2022 for securities held to maturity."
Experts say the bank's collapse appears to be a management failure, rather than a sign of larger problems in the financial services industry. Higher interest rates, falling tech stocks, and industry layoffs each squeezed the bank, which had wrapped up most of its deposits in long-term treasury bonds.
Former Congressional Budget Office Director Doug Holtz-Eakin, who also served on the Financial Crisis Inquiry Commission that studied the 2008 global economic crisis, blamed the bank's executives for bad decision-making. He stated that the Silicon Valley Bank had poor management of its Tier 1 capital, which was heavily concentrated in one asset, and had a narrow client base, comprising only tech companies in Silicon Valley. This led to a business model failure rather than a financial system failure.
The ripples of the bank's failure have been felt across the world. For instance, Israel Prime Minister Benjamin Netanyahu warned on Saturday that the implosion of Silicon Valley Bank has created a deep crisis in the technology industry. "I am closely monitoring the collapse of the American investment bank, Silicon Valley Bank, which has led to a major crisis in the high-tech world," tweeted the Prime Minister of Israel. "If necessary, out of responsibility to Israeli high-tech companies and employees, we will take steps to assist the Israeli companies, whose center of activity is in Israel, to weather the cash-flow crisis that has been created for them due to the turmoil," he added.
Silicon Valley Bank is the first FDIC-insured institution to fail this year. The last FDIC-insured institution to close was Almena State Bank, Almena, Kansas, on October 23, 2020.
