Collapse of Silicon Valley Bank
Seeking higher investment returns from its burgeoning deposits, SVB had dramatically increased its holdings of long-term securities since 2021, accounting for them on a hold-to-maturity basis.
The market value of these bonds decreased significantly through 2022 and into 2023 as the Federal Reserve raised interest rates to curb an inflation surge, causing unrealized losses on the portfolio.
[3][4] Higher interest rates also raised borrowing costs throughout the economy and some Silicon Valley Bank clients started pulling money out to meet their liquidity needs.
The announcement, coupled with warnings from prominent Silicon Valley investors, caused a bank run as customers withdrew funds totaling $42 billion by the following day.
On the morning of March 10, the California Department of Financial Protection and Innovation seized SVB and placed it under the receivership of the Federal Deposit Insurance Corporation (FDIC).
[6][7] Two days after the failure, the FDIC received exceptional authority from the Treasury and announced jointly with other agencies that all depositors would have full access to their funds the next morning.
In the autumn, San Francisco Fed officials met with SVB senior leaders to discuss the bank's ability to raise cash in a crisis and possible exposure to losses as interest rates rose.
[40] In the week before the collapse, Moody's Investors Service reportedly informed SVB Financial, the bank's holding company, that it was facing a potential double-downgrade of its credit rating because of its unrealized losses.
[49][50][51][52][53] On February 27, SVB Financial Group CEO Greg Becker sold 12,451 shares of company stock, worth $3.6 million, through an executive trading plan that he filed with the SEC under Rule 10b5-1 on January 26.
[55] Several hours later, the California Department of Financial Protection and Innovation seized SVB[47] citing inadequate liquidity and insolvency,[17] and placed it into the receivership of the FDIC.
[73][74] Shanghai Pudong Development Bank issued a statement that its joint operations with SVB, chaired by its own Shanghai-based chairman, were not affected by the collapse as of March 11.
A group including Centerbridge Partners, Davidson Kempner Capital Management, and PIMCO reportedly bought a stake in the company in anticipation of the bankruptcy.
[111] In the days after the collapse, startup founders and other customers lined up outside bank branches in Silicon Valley and San Francisco, seeking to withdraw their deposits or learn the status of their wire transfers.
At the time of the collapse, its largest shareholders included The Vanguard Group, BlackRock, and State Street Corporation, which owned the stock in large exchange traded funds that track the performance of S&P 500.
[6] SVB's losses highlighted the challenge that banks could face as interest rate increases reduced the market value of bonds that they purchased under low-rate policies.
[147] Investors and economists believed that the SVB collapse and other recent bank failures might prevent a previously expected Federal Reserve interest rate increase on March 22.
[151] The U.S. Securities and Exchange Commission and U.S. Department of Justice have reportedly opened investigations into the bank's financial disclosures and executives' recent trading plans.
[160] A group of 599 venture capitalists,[162] including Garry Tan and David O. Sacks, along with hedge fund manager Bill Ackman[106] and California State Senator Scott Wiener, called for a government intervention to protect uninsured depositors.
[164] Representative Matt Gaetz of Florida and Republican presidential candidates Nikki Haley and Vivek Ramaswamy expressed opposition to any taxpayer-funded bailout of the bank.
[166] Governor Newsom,[167] Senator Kyrsten Sinema of Arizona,[38] and Representative Anna Eshoo of California applauded the FDIC's announcement that it would protect depositors without affecting taxpayers via the Bank Term Funding Program.
[168] Mayor Mahan criticized the federal government's response to the bank's failure as slow and indicative of its misunderstanding of Silicon Valley startups' contribution to the national economy.
[168][169] Senators Elizabeth Warren of Massachusetts[2] and Bill Hagerty of Tennessee criticized regulators for protecting large depositors, including some of the venture capital firms that triggered the bank run.
[171] Economist Dean Baker contrasted the broad agreement behind rescuing relatively sophisticated Silicon Valley business proprietors with the objections over moral hazard and personal responsibility to President Biden's student loan forgiveness program.
[123] San Jose Chamber of Commerce CEO Derrick Seaver said any moral hazard was worth staving off the potential risk of allowing depositors to go unprotected.
[172] Senator Warren, Representative Khanna, and Mayor Mahan called for earnings from CEO Greg Becker's recent sale of SVB shares to be clawed back and returned to depositors.
[173] An official report from the FDIC and Federal Reserve noted deregulation and reduced enforcement of remaining regulations allowed mismanagement of the bank to cause its failure.
[2][175][176][164] Warren and Senator Richard Blumenthal of Connecticut asked the Department of Justice and Securities and Exchange Commission to investigate whether senior bank executives had violated any laws.
[179] Senator Tim Scott of South Carolina implied that the San Francisco Fed overlooked risks at the bank due to a shared focus on climate change.
Analysis by Talking Points Memo found the database actually showed corporate donations to a variety of diversity programs that had no apparent relationship to the Black Lives Matter movement.
[182] Representative Nancy Mace of South Carolina criticized other members of Congress for politicizing the bank's failure and urged caution in making public comments that could affect the market.
