What is the Silicon Valley Bank Failure?
The Silicon Valley Bank, located in Santa Clara, California, experienced its collapse on March 10, 2023. Before, the Silicon Valley Bank (SVB) had experienced positive growth, ultimately investing in long-term bonds. However, with time passing, long-term bond interest rates exponentially increased, causing the SVB’s investments to fall rapidly.
The drastic decrease in the Silicon Valley Bank’s investments led to a startling $1.8 billion “after-tax loss,” causing the SVB to need to raise large sums of capital to ensure depositors the safety of their investments and deposits.
In the 24 hours following the initial fall of investments for the SVB, the bank lost $160 billion, causing the SVB stock to decrease rapidly. According to NASDAQ, in the past month alone, the Silicon Valley Bank stock experienced a 64.88% decrease, dropping approximately $195.89 in value.
Seeing the drastic losses for the SVB, depositors quickly aimed to withdraw their money from the bank. The issue, however, lies in the fact that most banks do not store all of a depositor’s money in cash form. A portion of all deposits is stored in cash, also known as a fractional reserve. However, the rest of the SVB’s depositors’ money was invested in the form of long-term bonds. The long-term bonds that the SVB had invested in had a lesser value than the initial investments, ultimately meaning that depositor money had been lost. With growing fear for investments, bank depositors continued to withdraw up to $250,000 (per FDIC rules) in cash remaining in their bank accounts, ultimately causing a bank run.
A bank run is when a large number of customers of a bank or other financial institution withdraw their deposits at the same time over fears about the bank’s solvency.
Adam Hayes, Investopedia
Despite being provided with the guaranteed $250,000, which many had already withdrawn, most depositors of the SVB are business and technology workers or venture capitalists. Thus most depositors had much more deposited than $250,000, causing a widespread loss for depositors. Eventually, the Federal Deposit Insurance Corporation (FDIC) stepped in later on March 10th, ultimately guaranteeing the full deposits of SVB customers to prevent a widespread US economic failure due to the SVB’s customers and the bank’s importance to the entire United States’ stream of money.
The SVB Collapse Effect on North Texas Businesses
Despite most North Texas Businesses not being direct depositors within the Silicon Valley Bank, many startup companies located within North Texas receive investments from venture capitalists who are direct depositors of the SVB. Examples of businesses affected include North Texas’, TWG Supply and Mark Cuban’s Cost Plus Drugs, accompanying other major companies like Roku and Etsy.
Overall, the Silicon Valley Bank failure became a significant bank failure within the United States, the second-largest specifically. With the effects of the bank run and the loss of money for many depositors, bank customers around the globe are determining other methods to maintain their money safely, including depositing into multiple banks. Whatever the case might be, the Silicon Valley Bank failure opened many depositors’ eyes to the necessity of varying methods of money depositing.
Works Cited
(WFAA), Author: William Joy. “Mark Cuban and Other North Texas Businesses Impacted by Silicon Valley Bank Collapse.” Wfaa.com, 13 Mar. 2023, https://www.wfaa.com/article/news/nation-world/mark-cuban-other-north-texas-businesses-impacted-silicon-valley-bank-collapse/287-8c7ab0cc-9404-4f50-a858-6e89e3523f18.
Hayes, Adam. “What Is a Bank Run? Definition, Examples, and How It Works.” Investopedia, Investopedia, 14 Mar. 2023, https://www.investopedia.com/terms/b/bankrun.asp.
Hur, Krystal. “Former Goldman Sachs CEO: Notion That SVB Failed Because of Diversity Is ‘Laughable’.” CNN, Cable News Network, 16 Mar. 2023, https://www.cnn.com/business/live-news/stock-market-svb-inflation-ppi-031523/h_1eb0d4f93dc38c0615760aa1f6bb6ed4.
North Texas Startups Affected by Silicon Valley Bank Collapse | Fort … https://www.star-telegram.com/news/business/article273092445.html.
Procell, Carlie, and Ramon Padilla. “Silicon Valley Bank Collapse Explained in Graphics.” USA Today, Gannett Satellite Information Network, 14 Mar. 2023, https://www.usatoday.com/story/graphics/2023/03/13/graphics-bank-collapse-silicon-valley/11466073002/.
Stein, Jeff. “Wall Street Banks Will Put $30 Billion into Beleaguered First Republic.” The Washington Post, WP Company, 16 Mar. 2023, https://www.washingtonpost.com/us-policy/2023/03/16/yellen-bank-rescue-regional-banks/.