![]() Unfortunately, there’s no upside in leaving your deposits at a bank that is experiencing a bank run. Hence, the rational move would be to withdraw all your deposits and move them to a larger bank like Chase. ![]() The risk of losing all your capital at SVB, through no fault of your own, is immense. Your cash runway is 18 months until you need to raise another round of financing. Imagine if you were a money-losing startup that just raised $20 million. Silicon Valley Bank’s clients began withdrawing money because they no longer felt confident their deposits would be accessible. Then when SVB decided to raise $3 billion in equity to cover its shortfall, and couldn’t, the bank run accelerated. SVB borrowed short and lent too long, painful when the yield curve inverts. In such a scenario, the bank is losing money (negative Net Interest Margin). However, SVB was reinvesting short-term customer deposits, which became increasingly costly as the deposit interest rates they had to pay rose to over 4%. You would think holding Treasury bonds until maturity would be safe. After the Fed aggressively started raising rates, the value of its HTM portfolio tanked. Unfortunately, buying 3-10-year Treasury bonds in 2021 was close to the top of the market. SVB planned to hold them to maturity (HTM). Third, in 2021, SVB supposedly invested about half of its deposits into 3-10-year Treasury bonds yielding 1.63% on average. This is called the Net Interest Margin, or NIM. In general, this is fine because banks can then lend out deposits at an even higher rate of return. SVB had to pay higher interest rates to attract and retain deposits to stay competitive. The higher interest rates went, the more expensive SVB’s cost of capital, which are its deposits. Second, the Fed aggressively raised interest rates. SVB focuses on lending to technology companies, startups, biotech, venture capital, and private equity firms. Its clients couldn’t raise as much capital or keep depositing as much capital at SVB. As the stock market declined, so did SVB’s share price by 66%. Why Did The SVB Bank Run Happen?įirst, the bear market happened in 2022. ![]() The Feds also shut down New York’s Signature Bank and guaranteed all its depositors to help stop the contagion.īut will it be enough for the regional banks? Doubts are high. Thankfully, the Federal government decided to protect all SVB depositors on Sunday, March 13. Roughly 87% of Silicon Valley Bank’s deposits were uninsured as of December 2022, according to its annual report. The bank had $209 billion in assets and $175.4 billion in deposits. In the meantime, the FDIC will find a buyer so that depositors with over $250,000 will also be made whole. Ultimately, The Federal Deposit Insurance Corporation (FDIC) said on March 10, 2023, it would take over SVB and that its depositors with up to $250,000 will have access to their deposits no later than Monday morning, March 13, 2023. Even the largest banks were getting hit as well. Now the contagion has spread to other regional banks such as First Republic Bank, Signature Bank, Zions Bancorp, PacWest, Comerica, and Charles Schwab. Sadly, Silicon Valley Bank (SVB, $SIVB), the 16th largest bank in America at the end of 2022, experienced a bank run.
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