On March 10, Silicon Valley Bank, which has catered to many of the world’s most powerful tech investors collapsed and was taken over by federal regulators, making it the largest U.S. bank to fail since the 2008 global financial crisis.
According to NPR, Silicon Valley Bank represented clients such as Roku, Roblox, and Vox Media, and their heavy involvement in tech may have been a part of their downfall. Silicon Valley Bank’s business climbed during the pandemic between 2020 and 2022 as tech companies flourished.
Rather than investing the deposits into other startups or venture firms, the bank placed a share of the funds into long-term treasury bonds and mortgage bonds, which are known to deliver small but reliable returns despite low-interest rates. However, the low-interest rate went away because the Federal Reserve raised its benchmark interest rate by 4.5 bonds, the fastest pace since the 1980s.
This caused some tech companies to pull money from the bank and it was forced to sell some of the distressed securities to provide the cash. On March 12, the Federal Deposit Insurance Corporation, the U.S. Treasury Department, and the feds told depositors in Silicon Valley Bank that the FDIC would protect all of their funds, including the ones that exceeded the $250,000 limit. The accounts that held more than the limit made up the vast majority of accounts at SVB.
Federal officials are now taking measures to prevent this problem from spreading to other banks. In regards to SVB collapsing, president Joe Biden said on March 13 that “the banking system is safe. Your deposits will be there when you need them.”
“I’m going to ask Congress and the banking regulators to strengthen the rules for banks, to make it less likely this kind of bank failure would happen again, and to protect American jobs and small businesses,” Biden said.
