Top US Bank, Silicon Valley Bank (SVB) Collapses

This week, shares of Silicon Valley Bank (SVB) took a nosedive, shocking investors and industry insiders alike. The abrupt and severe collapse of SVB, a financial institution known for its focus on serving the tech startup community, has sent shockwaves through the financial world.

The collapse of SVB appears to be rooted in dislocations spurred by higher rates. As startup clients withdrew deposits to keep their companies afloat in the face of rising borrowing costs, the bank was left with a sudden shortage of liquidity, leading to a cascade of margin calls that ultimately proved too much for the institution to bear.

The collapse was swift and dramatic, taking only 44 hours to complete. But its roots run much deeper. SVB Financial Group, the parent company of Silicon Valley Bank, made a series of risky bets on the Treasury market during the pandemic. These bets ultimately proved disastrous, as they left the bank overexposed to sudden market fluctuations. Despite this, SVB Financial Group’s CEO Greg Becker expressed confidence in the bank’s ability to weather the storm, stating, “We pride ourselves on being the best financial partner in the most challenging times”.

SVB’s collapse has raised important questions about the Federal Reserve’s aggressive rate increases, which have taken rates from near zero percent a year ago to more than 4.5% today. The collapse has led some to wonder whether the Fed’s policies have finally caused something essential to break in the financial system. Others, however, remain confident in the banking system’s resilience, pointing out that SVB’s collapse was caused by specific issues within the institution rather than broader systemic issues.

The collapse of Silicon Valley Bank has sent shockwaves through the financial world, leaving investors and industry insiders alike wondering what went wrong. While the root causes of SVB’s downfall appear to be rooted in dislocations spurred by higher rates and risky bets on the Treasury market, the collapse has also raised important questions about the future of banking in Silicon Valley and the broader financial system as a whole.