Silicon Valley Bank Failure

Silicon Valley Bank Failure

Within 48 hours, Silicon Valley Bank, the 16th largest bank in the US, collapsed and was put under the control of the Federal Deposit Insurance Corp after a botched capital call and a rush of depositors withdrawing their funds. As the go-to bank in tech, SVB had been a major beneficiary of the Silicon Valley boom through the past few years. However, due to a lack of demand for loans among SVB's tech customers, the bank decided to park its deposits in securities. The bulk of these securities were "held-to-maturity" assets, such as Treasuries and mortgage bonds, which meant their value didn't move up and down with interest rates or the overall market. As rates rose and the tech boom faded, SVB reached a point where it had to sell some of the securities it had invested in to return the money to depositors. The bank sold $21 billion in bonds from its "available-for-sale" portfolio, resulting in a $1.8 billion loss and a failed capital call, leading to the bank's collapse.

However, depositors of the failed bank will receive their money, and the government has taken decisive steps to prevent further erosion of the banking system. This situation is not like the 2008 financial crisis, as the SVB catered to the venture capital community. Mortgage loans will continue without hiccups, and mortgage rates lowered by almost a quarter at the end of last week.

-Read more: Business Insider



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