On Wednesday $SIVB was business as usual. By Friday, $SIVB was shuttered and was placed into a Federal Depository Insurance Company Receivership. In other words, regulators seized all deposits.

What happened in just 2 days?
It really comes down to a lot of factors that all aligned for the worst-case scenario for the bank.

Unlike most banks, the majority of $SIVB’s clientele were tech startups and venture capital firms that rely heavily on outside investments via IPOs or private fundraising. Unfortunately, because the Fed has been increasing interest rates, it was harder for these clients to raise outside capital. Clients were needing to withdraw deposits to keep their companies functioning.

This increase in withdrawals lead $SIVB to fall short of capital requirements and on Wednesday they were forced to sell off all of their available for-sale-bonds for a loss of $1.8 Billion.

Due to the very recent collapse of the crypto-focused bank, Silvergate bank ($SI), the news of Silicone Valley Bank ($SIVB) needing to sell off assets to meet capital requirements caused a panic in VCs that urged their portfolio of companies to move funds in fear of a potential bank run that would cause these companies/startups to potentially be unable to access their deposits.

$SIVB CEO Greg Becker was unable to instill confidence in customers and urged them to “stay calm” during the call held Thursday afternoon. Becker was unable to assure listeners that even after selling the bonds, they wouldn’t need to raise more funds. 

According to a California Regulatory Filing, the lack of confidence in the bank resulted in $42 billion of customer deposits being withdrawn by the end of Thursday.

By the close of business on Thursday, $SIVB had a negative cash balance of approximately $958 million and were unable to obtain enough collateral from other sources.

The lack of diversity in the bank’s clientele played a big factor in it's failure. Prominent funds sent emails to their portfolios of startups that instructed them to pull their funds out of the bank due to concerns of a bank run. The irony is that the panic caused from the emails warning of concern are in fact what caused the bank run that ended $SIVB’s 40 year run and caused the 2nd largest bank failure in US history.

For those unfamiliar with the term, a bank run occurs when many customers or a large group of depositors all withdraw their money from a bank simultaneously due to fears that the bank may become insolvent or fail in the near future.

There is much concern as to what will happen and where the FDIC will step in to protect the depositors that were unable to withdraw their funds and if they should or should not increase the level of monetary support they provide to the depositors that were above the $250K insured amount.

Bloomberg is reporting that the FDIC auction process for $SIVB began last night and final bids are due this afternoon.

Right now, everything is all speculation. We will provide updates as new facts emerge.

Again, a lot of the issues that caused the failure were due to the nicheness of the bank’s clientele and how intermingled they all were with one another. However, due to the publicity of the event, it can cause a lack of confidence in small banks and lead up to a large panic in the upcoming week. 

I hope this helps to clarify and simplify this matter for a lot of people who may have been confused about what caused the ultimate demise of $SIVB.