Is Silicon Valley Bank Discontinued? What Happened? Scandal

Silicon Valley Bank opened in 1983 in Santa Clara, California. For 40 years it was the main bank for technology startups and the investors who funded them. If you started a tech company in the United States and needed a business bank account, SVB was usually the first call.

The bank worked the way most banks do. It held deposits from customers and then invested or lent that money out to earn a return. During the years when interest rates were very low, SVB’s tech clients were sitting on a lot of investor money and deposited large amounts at the bank. SVB put a big share of those deposits into long-term government bonds that paid a low but steady return.

Then interest rates started rising sharply in 2022. When rates go up, older bonds that were bought when rates were lower lose value. SVB was holding a large amount of those bonds, and they were worth less than what the bank had paid for them.

In early March 2023, SVB announced it had sold some of those bonds at a loss and needed to raise more money. That news scared customers. Tech startups and the investors who funded them heard the announcement and started pulling their deposits out. Because so many of SVB’s customers knew each other and acted quickly, the withdrawals came in a huge wave. In less than 48 hours the bank could not keep up.

On March 10, 2023, California regulators shut SVB down. The FDIC, the US government agency that steps in when banks fail, took over and kept basic services running. On March 26, First Citizens Bank agreed to buy most of SVB’s deposits and loans from the FDIC. The SVB name and the bank itself were gone, but the accounts and loans moved to a new owner.

SVB’s collapse was the second-largest bank failure in US history at the time. It set off concern about other regional banks and led regulators to take a closer look at how banks handle the risk of rising interest rates.