Silicon Valley Bank Crisis Explained in English with example
On March 10, 2023, Silicon Valley Bank (SVB) failed after a bank run, causing the largest bank failure since the 2008 financial crisis and the second-largest in U.S. history. The collapse of SVB has had a significant impact on startups from the US and abroad, with many unable to withdraw money from the bank. Other large technology companies, media companies, and wineries were also impacted.
During the COVID-19 pandemic, the tech sector experienced a period of growth. Capitalizing on an increase in deposits in 2021, SVB purchased long-term Treasury bonds. The current market value of these bonds decreased as the Federal Reserve raised interest rates to curb an inflation surge. 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. To raise cash to pay withdrawals by its depositors, SVB announced on March 8 that it had sold over US$21 billion worth of securities, borrowed US$15 billion, and would hold an emergency sale of some of its treasury stock to raise US$2.25 billion. The announcement, coupled with warnings from prominent Silicon Valley investors, caused a bank run as customers withdrew funds totaling US$42 billion by the following day.
On the morning of March 10, 2023, the California Department of Financial Protection and Innovation (DFPI) seized SVB and placed it under the receivership of the Federal Deposit Insurance Corporation (FDIC). Some 89 percent of the bank's US$172 billion in deposit liabilities exceeded the maximum insured by the FDIC.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. It reopened the bank as a newly organized bridge bank, Silicon Valley Bridge Bank, N. A.,superseding an earlier plan to satisfy depositors through a deposit insurance national bank and receivership dividends
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