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A Disaster Upon Money in Silicon Valley

Silicon Valley Bank Collapses Due to a Complication of Issues

Photo by Blogging Guide on Unsplash

Silicon Valley Bank (SVB) took four years to develop into a major bank in the United States, but it took less than two days to collapse. The bank was shut down on March 10 by the California Department of Financial Protection and Innovation. SVB was the 16th largest bank in the country, with around $209 billion in its total assets and around $174.5 billion in its total deposits by the end of last year. Due to its massive scale and influence on the economy, SVB’s fall marked the biggest bank fall since the Great Recession and the second biggest in U.S. history.

Prior to its closure, on March 8, the bank announced its $1.8 billion loss and its intent to raise $2.25 billion by selling common stock and preferred shares. This sparked concern among customers, who immediately began withdrawing their money. Shares for SVB fell by 60% in just a day and by another 64% the next day. On March 10, stock trading for SVB Financial Group, the parent company of SVB, was halted and SVB was taken over by the federal regulators. Soon after, SVB Financial Group filed for bankruptcy. As a solution, SVB’s deposits were translocated to a bank newly created by the Federal Deposit Insurance Corporation (FDIC), and the FDIC assured customers that all funds, whether insured or not, wil be protected.

“It makes me a little worried about what could happen to other places if it’s happening in one of the largest banks,” senior Abbi Taylor said. “We were learning about the Great Depression in history class yesterday, and it sounds kind of close to that.”

Amid the financial crisis, the public’s main questions surround why SVB collapsed. One of the main causes of the bank failure is a high portion of uninsured deposits. According to the New York Times, 97% of the bank’s deposits were uninsured, which made the bank and customers more vulnerable to damage from losses. However, the deeper underlying issue comes from the rising interest rates. SVB had invested in Treasury bonds and debt for a long time, but as federal regulators increased interest rates to combat inflation, the value in SVB’s investments declined over time.

“It was scary because the bank crashed and the stocks went down, and usually that means that the government has to do something to get it back, and that just puts us in more debt,” sophomore Olivia Collins said. “[My biggest concern is] the domino effect. We’re all about to be adults and the idea that the economy is going worse is a little scary.”

After the fall of SVB, many other regional banks in the U.S. have fallen and been investigated. Signature Bank in New York was closed on March 12,  shares of the First Republic Bank were terminated, and a number of regional banks were paused by Wall Street. SVB’s collapse will also leave lasting impacts on startup companies because the Silicon Valley area is the biggest startup city in the country.

“One of my biggest concerns is globally the financial markets and what can happen,” macroeconomics teacher Stephanie Amidon said. “A lot of other countries either use dollars or exchange with our dollars, and the insecurities of our banking system right now can certainly have ripple effects in many markets.”


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Andy Poll

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