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The Collapse of Silicon Valley Bank Explained
Silicon Valley Bank, once a prominent lender in the tech start-up world, has collapsed under the weight of ill-fated decisions and panicked customers, forcing the Federal Deposit Insurance Corporation (FDIC) to step in. The bank’s failure is the second-largest in U.S. history, and the largest since the financial crisis of 2008.
While the woes facing Silicon Valley Bank are unique to it, the collapse has raised concerns that other banks could face similar problems. This article aims to explore the events leading up to Silicon Valley Bank’s downfall and the implications it may have for the banking industry.
Background
Silicon Valley Bank, founded in 1983, had long been a go-to lender for start-ups and their executives, positioning itself as a “partner for the innovation economy.” Flush with cash from high-flying start-ups that had raised significant amounts of money from venture capitalists, the bank invested the majority of its deposits in long-dated Treasury and mortgage bonds that promised modest, steady returns. This strategy worked well for years, with deposits doubling to $102 billion in 2020 and reaching $189.2 billion in 2021 as technology companies experienced robust profits during the pandemic.
However, the bank’s troubles began when it purchased large amounts of bonds just…
