Here’s how the second-biggest bank collapse in U.S.
history
happened in just 48 hours
Published Fri, Mar 10 20233:59 PM ESTUpdated Fri, Mar 10
20238:38 PM EST
Hugh Son@hugh_son
Rohan Goswami@in/rohangoswamicnbc/@rogoswami
Jonathan Vanian@in/jonathan-vanian-b704432/
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Silicon Valley Bank meltdown: Here’s how it happened in real time
On Wednesday, Silicon Valley Bank was a well-capitalized institution
seeking to raise some funds.
Within 48 hours, a panic induced by the very venture capital community
that SVB had served and nurtured ended the bank’s 40-year-run.
Regulators shuttered SVB Friday and seized its deposits in the largest U.S.
banking failure since the 2008 financial crisis and the second-largest ever.
The company’s downward spiral began late Wednesday, when it surprised
investors with news that it needed to raise $2.25 billion to shore up its
balance sheet. What followed was the rapid collapse of a highly-respected
bank that had grown alongside its technology clients.
Even now, as the dust begins to settle on the second bank wind-
down announced this week, members of the VC community are lamenting
the role that other investors played in SVB’s demise.
“This was a hysteria-induced bank run caused by VCs,” Ryan Falvey, a
fintech investor at Restive Ventures, told CNBC. “This is going to go down
as one of the ultimate cases of an industry cutting its nose off to spite its
face.”
A Brinks armored truck sits parked in front of the shuttered
Silicon Valley Bank (SVB) headquarters on March 10, 2023 in
Santa Clara, California.
Justin Sullivan | Getty Images
The episode is the latest fallout from the Federal Reserve’s actions to stem
inflation with its most aggressive rate hiking campaign in four decades.
The ramifications could be far-reaching, with concerns that startups may
be unable to pay employees in coming days, venture investors may
struggle to raise funds, and an already-battered sector could face a deeper
malaise.
Shares of Silicon Valley Bank collapsed this week.
The roots of SVB’s collapse stem from dislocations spurred by higher rates.
As startup clients withdrew deposits to keep their companies afloat in a
chilly environment for IPOs and private fundraising, SVB found itself short
on capital. It had been forced to sell all of its available-for-sale bonds at a
$1.8 billion loss, the bank said late Wednesday.
The sudden need for fresh capital, coming on the heels of the collapse of
crypto-focused Silvergate bank, sparked another wave of deposit
withdrawals Thursday as VCs instructed their portfolio companies to move
funds, according to people with knowledge of the matter. The concern: a
bank run at SVB could pose an existential threat to startups who couldn’t
tap their deposits.
SVB customers said CEO Greg Becker didn’t instill confidence when he
urged them to “stay calm” during a call that began Thursday afternoon.
The stock’s collapse continued unabated, reaching 60% by the end of
regular trading. Importantly, Becker couldn’t assure listeners that the
capital raise would be the bank’s last, said a person on the call.
Death blow
All told, customers withdrew a staggering $42 billion of deposits by the
end of Thursday, according to a California regulatory filing.
By the close of business that day, SVB had a negative cash balance of
$958 million, according to the filing, and failed to scrounge enough
collateral from other sources, the regulator said.
Falvey, a former SVB employee who launched his own fund in 2018,
pointed to the highly interconnected nature of the tech investing
community as a key reason for the bank’s sudden demise.
Prominent funds including Union Square Ventures and Coatue
Management blasted emails to their entire rosters of startups in recent
days, instructing them to pull funds out of SVB on concerns of a bank run.
Social media only heightened the panic, he noted.
“When you say, `Hey, get your deposits out, this thing is gonna fail,′ that’s
like yelling fire in a crowded theater,” Falvey said. “It’s a self-fulfilling
prophecy.”
Another venture investor, TSVC partner Spencer Greene, also criticized
investors who “were wrong on the facts” about SVB’s position.
“It appears to me that there was no liquidity issue until a couple of VCs
called it,” Greene said. “They were irresponsible, and then it became self-
fulfilling.”
‘Business as usual’
Thursday evening, some SVB customers received emails assuring them
that it was “business as usual” at the bank.
“I’m sure you’ve been hearing some buzz about SVB in the markets today
so wanted to reach out to provide some context,” one SVB banker wrote to
a client, according to a copy of the message obtained by CNBC.
“It is business as usual at SVB,” the banker wrote. “Understandably there
may be questions and I want to make myself available if you have any
concerns.”
By Friday, as shares of SVB continued to sink, the bank ditched efforts to
sell shares, CNBC’s David Faber reported. Instead, it was looking for a
buyer, he reported. But the flight of deposits made the sale process
harder, and that effort failed too, Faber said.
A customer stands outside of a shuttered Silicon Valley Bank
(SVB) headquarters on March 10, 2023 in Santa Clara, California.
Justin Sullivan | Getty Images
Falvey, who started his career at Wells Fargo and consulted for a bank that
was seized during the financial crisis, said that his analysis of SVB’s mid-
quarter update from Wednesday gave him confidence. The bank was well
capitalized and could make all depositors whole, he said. He even
counseled his portfolio companies to keep their funds at SVB as rumors
swirled.
Now, thanks to the bank run that ended in SVB’s seizure, those who
remained with SVB face an uncertain timeline for retrieving their money.
While insured deposits are expected to be available as early as Monday,
the lion’s share of deposits held by SVB were uninsured, and it’s unclear
when they will be freed up.
“The precipitous deposit withdrawal has caused the Bank to be incapable
of paying its obligations as they come due,” the California financial
regulator stated. “The bank is now insolvent.”