Explainer | Why did Silicon Valley Bank fail, and what does it mean?
- The California bank was closed by regulators on Friday and put under the control of the Federal Deposit Insurance Corporation (FDIC)
- That followed a tumultuous few days, including a botched capital call and a rush of depositors withdrawing their funds
Wondering what just happened at Silicon Valley Bank?
The California bank was closed by regulators on Friday and put under the control of the Federal Deposit Insurance Corporation (FDIC). That followed a tumultuous few days, including a botched capital call and a rush of depositors withdrawing their funds.
The speed of SVB’s demise was especially striking. On Tuesday, SVB CEO Greg Becker was at an investor conference answering questions about what he does to relax. A few days later, the bank he led had collapsed.
So how did it come to this? SVB’s actions in the last week, where it surprised the market with a planned capital raise which later failed, are partly to blame. Venture capitalists imploring the founders they back to pull money from the bank certainly did not help.
But the seeds of SVB’s demise were planted months ago. SVB’s position as the go-to bank in tech made it a huge beneficiary of the Silicon Valley boom through the last few years. As venture capitalists raised huge funds and then invested that money into start-ups that bank with SVB, billions in deposits flowed to SVB.
A bank might normally turn those deposits into loans to customers. But in part because of the tech boom, there wasn’t a lot of demand for loans among SVB’s tech customers.
