Silicon Valley Bank, one of the largest banks in the United States, collapsed.


Silicon Valley Bank (SVB), once America's 16th largest bank, has gone bankrupt, stoking fears of a bigger financial disaster affecting regional American banks. SVB's rapid development in recent years, providing services to nearly half of all venture-backed technology businesses in the US, has led to its demise, and its failure could have repercussions for other American banks.

The bank benefited from the fast rise of the technology industry in recent years.

According to financial documents, the bank's assets, which include loans, more than tripled from $71 billion at the end of 2019 to a peak of $220 billion by the end of March 2022.

Silicon Valley Bank Crisis

So, what happened at Silicon Valley Bank? Listed below are the top five reasons:

  1. Poor investment decisions: When interest rates were low, Silicon Valley Bank invested the majority of its deposits in government bonds. While bonds were regarded as a secure investment at the time, the bank's strategy did not fare well when the Federal Reserve began raising interest rates to combat inflation last year. When bond prices declined, the bank was forced to sell some of its holdings despite the value drop.
  2. Inability to pay depositors: Silicon Valley Bank did not have enough funds to pay depositors due to poor investment decisions. California regulators shut down the bank, triggering investor fear and a large reduction in the bank's stock price.
  3. Losses on investments: Silicon Valley Bank suffered a $1.8 billion loss on the sale of certain of its securities, which it was unable to offset. This statement caused panic among their investors, and their stock dropped 60%.
  4. Rapid growth: The assets of Silicon Valley Bank, including loans, have more than quadrupled from $71 billion at the end of 2019 to a peak of $220 billion at the end of March 2022. Following this tremendous growth, the bank's investment decisions proved to be foolish, resulting in the bank's demise.
  5. Impact on the banking industry: The failure of Silicon Valley Bank may have a knock-on impact on other US institutions, raising fears among financial experts that markets will continue to plummet in the near future.
Silicon Valley Bank's failure is one of the three largest in US banking history, with Washington Mutual's failure in 2008 taking the top rank. The failure of Washington Mutual triggered a global recession that lasted nearly two years. As a result, the US administration is treating the problem with caution. The Federal Deposit Insurance Corporation (FDIC) now has ownership of about $175 billion in Silicon Valley Bank deposits, and all of SVB's assets have been auctioned off.

President Joseph Biden vowed a "full accounting of what transpired," and said he will push regulators and banking authorities to tighten the sector's laws. He also ruled out a bailout package, claiming that taxpayers' money will not be used to cover bank losses.

What can consumers of Silicon Valley Bank do now? As large banks witness an infusion of capital, the head of Silicon Valley Bridge Bank, which was founded by US regulators to successor Silicon Valley Bank, has urged fleeing depositors to return with their money. The FDIC has frequently stated that it will cover all SVB depositors, including those who exceed the typical $250,000 limit for FDIC protection.

To summarise, Silicon Valley Bank's demise was caused by poor investment decisions, rapid growth, and an inability to pay depositors. The bank's failure might have a domino effect on other American banks, prompting banking experts to worry that markets will continue to plummet in the near future. The US government, on the other hand, is handling the issue with caution, and Silicon Valley Bank customers may be certain that their accounts will be covered by the FDIC.