By: Maxwell Lehman (10th)
On the 10th of March, the financial world was shaken by the collapse of Silicon Valley Bank, marking the largest bank failure since the 2008 financial crisis. Founded in 1983, the bank was established to provide services to startups, and as of December 2022, it had amassed $209 billion in assets and $175 billion in deposits.
However, as the COVID-19 swept the globe, the bank experienced a surge in deposits. Approximately 90% of accounts had over $250,000 in deposits meaning a large amount of the money deposited was uninsured.
To make matters worse, the bank invested this extra capital in treasury bonds with long-term maturities. When the government raised interest rates, the value of these bonds plummeted, resulting in significant losses for the bank. Additionally, the recent poor performance of the tech sector prompted many customers to withdraw their deposits, worsening the situation.
Last week, the bank was forced to sell its bonds, resulting in a loss of $1.8 billion and triggering a bank run. In response, federal regulators have taken control of the bank and are planning to bail them out.