Silicon Valley Bank (SVB), the 16th-largest bank in the US and the primary bank for Silicon Valley startups, invested a large portion of its deposits in long-term Treasury bonds and mortgage-backed securities during the low-interest-rate period of 2020-2021.
When the Federal Reserve raised interest rates aggressively in 2022-2023, the value of SVB's bond portfolio fell significantly. The bank was sitting on approximately $15 billion in unrealized losses. When SVB announced a $2.25 billion stock offering to shore up its capital on March 8, 2023, it triggered panic among its tech-sector depositors.
Venture capitalists advised their portfolio companies to withdraw their deposits. In a single day, depositors attempted to withdraw $42 billion — a bank run accelerated by social media and group chats. SVB collapsed on March 10, 2023, the second-largest bank failure in US history. The case illustrated how a concentrated depositor base, social media amplification and interest rate risk can combine to destroy a bank in 48 hours.
A $42B run and $15B in unrealized losses sank SVB, the second-largest US bank failure, in 48 hours.
SVB invested deposits in long-term bonds during low rates; rising rates created $15B in unrealized losses.
The bank's depositor base was concentrated in tech startups, which moved money in large blocks.
A stock offering announcement triggered panic; VCs advised portfolio companies to withdraw.
$42B in withdrawal attempts in one day; SVB collapsed in 48 hours.
A bank run in the age of social media takes hours, not days. SVB's depositors were connected by VC group chats. The interest rate risk was the kindling; social media was the spark.
SVB was taken over by the FDIC. The Federal Reserve created an emergency lending facility to prevent contagion. The case prompted a re-examination of bank regulation for mid-size institutions and the role of social media in financial panics.
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