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A brief history of the collapse of the Silicon Valley Bank (SVB), which existed from 1983 to

A brief history of the collapse of the Silicon Valley Bank (SVB), which existed from 1983 to

created Daniel Kostecki12 March 2023

On March 11, 2008, the troubles of Bear Sterns began, which heralded the beginning of a huge financial crisis, leading to an economic collapse and to the collapse of the financial markets. Exactly 15 years have passed since that event and the US banking sector is on the lips of all investors again. For the time being, the causes differ, because it is currently difficult to predict the scale and effects of the domino effect.

What actually happened at SVB that the bank that had been servicing Silicon Valley entities for 40 years collapsed?

March 8, 2023 (Wednesday)

The bank informs that sold bonds worth USD 21 billion from the pool of available-for-sale bonds held on its balance sheet. The bank lost $1,8 billion on the sale, more than its entire annual profit. The loss resulted from the fact that the bank did not hedge its bond portfolio against the interest rate market (if interest rates go up, bond prices go down). Why wasn't it done? It turns out that the bank has apparently not had a risk management person employed for a year. This sounds grotesque, just in a year when interest rates rose at a record pace.

Looking further into the books, the bank's balance sheet was essentially divided into two components - bonds available for sale and bonds the bank intended to hold until maturity (HTM – held to maturity). Due to the fact that he intended to hold them until maturity, he did not report (or avoided reporting) a net loss on these positions.

It turned out that the net loss on these securities in the current valuation value is as much as USD 15 billion.

March 9, 2023 (Thursday)

The run on the bank has begun. The bank's customers frantically wanted to withdraw their money after hearing about his troubles. To raise capital to pay out deposits, SVB had to start selling bonds it intended to hold until maturity. The loss on these transactions only increased, which resulted in the loss of the bank's liquidity.

March 10, 2023 (Friday)

Silicon Valley Bank is shut down by regulators in the biggest bankruptcy since the global financial crisis. The FDIC (Federal Deposit Insurance Corporation) said in a statement that insured depositors will have access to their deposits no later than Monday morning. Reportedly, only less than 3% were insured. deposits… During this time, SVB branches will also reopen, under the supervision of the regulator.

Standard FDIC insurance covers up to $250. dollars per depositor, per bank, for each category of account ownership.

At the end of December, SVB had approximately $209 billion in total assets and $175,4 billion in total deposits. The last US bank to fail on such a scale was Washington Mutual in 2008, which had $307 billion in assets.

Unfortunately, this is not a movie, and the reality and story should end with the inscription ... to be continued.

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About the Author
Daniel Kostecki
Chief Analyst of CMC Markets Polska. Privately on the capital market since 2007, and on the Forex market since 2010.