There was a time when people literally kept their money under mattresses. Today, salaries, savings, and investments almost always pass through a commercial bank. Commercial banks are financial institutions that accept deposits, issue loans, provide overdraft facilities, certificates of deposit, and other financial services. They earn revenue primarily through lending and the interest charged on those loans.
There are thousands of commercial banks worldwide, but in early 2023, one institution stood out for all the wrong reasons: Silicon Valley Bank (SVB). This is the story of how the bank rose, collapsed, and why its failure still matters to businesses, start-ups, and everyday consumers today.
Financial literacy and risk awareness — topics often explored on Melbur and Melbur UK — are key to understanding why SVB’s collapse sent shockwaves across the global financial system.
READ MORE: The 10 Biggest Bank Failures Since 2000
How Silicon Valley Bank Started
Silicon Valley Bank was headquartered in Santa Clara, California, at the heart of Silicon Valley. It primarily operated within the United States, with a strong concentration in California. SVB specialised in providing banking services to the technology sector, particularly venture capital-backed start-ups.
Founded in 1983, SVB grew rapidly alongside the tech industry boom. Over time, it became the largest bank by deposits in Silicon Valley and the preferred banking partner for many start-ups that traditional banks considered too risky. By the time of its collapse, SVB was the 16th largest bank in the United States.
According to the Federal Deposit Insurance Corporation (FDIC), SVB held approximately $209 billion in assets by the end of 2022. Its business model was deeply intertwined with venture capital funding cycles and the technology sector’s growth trajectory.
The Bank’s Biggest Clients
Roughly half of all US venture-backed technology and healthcare companies had a financial relationship with SVB. The bank gained loyalty by offering tailored services to start-ups that lacked long operating histories but showed strong growth potential.
During the COVID-19 pandemic, technology companies experienced a surge in demand as consumers spent heavily on digital services, remote work tools, and online entertainment. As venture capital funding poured into tech, start-ups deposited large sums with SVB to manage payroll and operational expenses.
Major companies reported to have held significant funds at SVB included Etsy, Roblox, Rocket Lab, and Roku. Like most banks, SVB invested a large portion of these deposits — a decision that would later contribute to its downfall.
The Bank’s Downfall
SVB’s collapse was driven primarily by two interconnected factors.
1. Lack of Diversification
SVB invested heavily in long-term US Treasury bonds and agency mortgage-backed securities. While this strategy is common among banks, it exposed SVB to interest-rate risk. When the Federal Reserve raised interest rates aggressively in 2022 to fight inflation, bond prices fell sharply.
SVB had also shifted from short-term lending to longer-term securities in search of higher yields, without adequately hedging its liabilities. This meant the bank could not liquidate assets quickly without incurring substantial losses. Technically, SVB remained solvent only if it held those bonds until maturity.
As economic conditions tightened and venture capital funding slowed, tech clients began withdrawing funds. SVB lacked sufficient liquid cash, forcing it to sell bonds at a loss — triggering panic among investors and customers. Within 48 hours of announcing these asset sales, the bank collapsed.
2. A Bank Run
On March 6, 2023, SVB announced plans to raise $1.75 billion in capital. The announcement alarmed customers and investors, particularly as news spread rapidly on social media platforms like Twitter. Fear escalated quickly.
By March 7, SVB’s stock had fallen by nearly 60%. On March 8, California regulators shut down the bank and placed it under FDIC control. Unlike typical retail banks, SVB’s clients held deposits far exceeding the FDIC’s $250,000 insurance limit. As withdrawals accelerated, the bank run intensified, leaving many start-ups unable to access funds needed for payroll and operating expenses.
Aftermath
SVB’s collapse heavily impacted tech companies whose deposits exceeded FDIC insurance limits. While depositors were eventually protected, shareholders and investors suffered significant losses.
On March 26, the FDIC announced that First Citizens Bank would acquire most of SVB’s deposits and loans. At the time of collapse, SVB held approximately $167 billion in assets and $199 billion in deposits. First Citizens purchased around $72 billion in assets at a discount, while the FDIC retained control of nearly $90 billion.
SVB Financial Group, the bank’s former parent company, later filed for Chapter 11 bankruptcy protection.
Globally, SVB was not an isolated case. Other institutions faced distress, including Signature Bank and Credit Suisse, which was acquired by UBS in a government-brokered deal.
The Government to the Rescue
On March 12, the US government guaranteed all SVB deposits. Importantly, this was not a bailout of the bank itself. SVB remained defunct, and its remaining assets were allocated to creditors.
The FDIC established the Deposit Insurance National Bank of Santa Clara to manage insured and uninsured deposits. Insured depositors regained access to funds on March 13, while uninsured depositors received advance dividends pending asset sales.
The collapse forced regulators to reassess how rapid interest-rate hikes affect regional banks, particularly those heavily exposed to single industries such as technology start-ups.
Final Word
SVB’s failure highlights the importance of prudent financial management during both boom and downturn periods. Rising interest rates, tightening capital markets, and sector concentration require companies and banks alike to manage risk carefully.
For consumers and businesses, the key lesson remains diversification. Staying within insurance limits, spreading deposits across institutions, and maintaining strong balance sheets are essential safeguards — insights frequently discussed across Melbur’s finance and business content platforms.
While funding conditions for start-ups may remain challenging, disciplined financial planning and diversified funding sources can help mitigate future shocks.
