The Silicon Valley Bank (SVB) collapsed only a few weeks ago on March 9, marking the second-biggest bank crash in America. Headquartered in Santa Clara, California, SVB catered to startups and fast growing technology companies. For forty years, SVB has been building its reputation as the 16th largest bank in America, but in less than forty eight hours, they lost their title and caused a banking crisis.

In 2020, during the pandemic, the Federal Reserve lowered interest rates to nearly 0% and printed lots of money to boost the economy. As a result, investors used their cash to drive up the price of investments, and almost all asset classes rose: stocks, bonds, and even cryptocurrency. With all the startups and fast growing technology businesses raising lots of money, many of them deposited their cash at Silicon Valley Bank.

SVB’s deposits rose 86% in 2021, and the bank raised more money than they could lend to others themselves, so with the excess cash, SVB purchased long term, low interest rate bonds. When the Federal Reserve quickly raised interest rates last year to fight inflation, the bonds that SVB had purchased decreased in value. This caused Moody’s Investors Service, a bond credit rating business, to downgrade SVB’s credit rating. 

To correct this problem, SVB attempted to sell $21 billion of their low-yielding bonds at a loss. They hoped to raise new investments from private equity firms to make up for this. However, the paperwork to complete these transactions would take weeks to process—time that SVB did not have. 

After learning of these events, distinguished venture capitalists, including Peter Thiel’s Founders Fund, advised startups to remove their deposits in SVB. This snowballed quickly into a major bank run and caused private equity firms to withdraw their investment offers. With phones allowing people to withdraw cash from their bank in less than five clicks, SVB lost almost all of their deposits in less than two days.

Another large reason that depositors at SVB raced to withdraw their money, was because most of it was not insured by the Federal Deposit Insurance Company (FDIC), a government entity that insures bank deposits. The FDIC insures deposits up to $250,000 dollars, but 97.3% of the deposits at SVB were higher than this amount. Fortunately, the FDIC announced on Sunday, March 12, that these businesses will receive 100% of their deposits back.

The FDIC took over the $40 billion bank on Friday, and each shareholder in the SVB, such as JPMorgan and Vanguard, has lost all of the money that they invested in it. As this crash continues to unravel, society must analyze what effects this collapse will have on our world, and the future of our economy.