SVB collapse: Here’s everything you need to know

Fear trickled through the bank sector following the collapse of Silicon Valley Bank and Signature Bank last week, prompting major federal intervention over the weekend to backstop uninsured deposits at Silicon Valley Bank in a bid to halt panic.

Silicon Valley Bank’s collapse in particular marked the most significant banking failure in the United States since Washington Mutual faltered in 2008. More broadly, blowback from the cratering of the two banks could wreak havoc across the economy, a fate government authorities are desperate to avert.

SILICON VALLEY BANK COLLAPSE: U.S. OFFICIALS REPORTEDLY WEIGH BACKSTOPPING DEPOSITORS

Here’s everything you may have missed about the banking meltdown.

Silicon Valley Bank’s history

Silicon Valley Bank was founded in the 1980s and helped fund tech startups across the country. The company was catapulted to riches during the coronavirus pandemic, which ushered in a tech boom. Silicon Valley Bank’s securities portfolio shot up from about $27 billion in the first quarter of 2020 to roughly $127 billion by the end of 2021.

For comparison, that 100% jump massively outpaced the 24% increase JPMorgan Chase experienced during the same time frame, Bloomberg reported. Many of Silicon Valley Bank’s investments featured treasuries, or government debt, which have historically been viewed as safe assets.

Easy money policies coupled with pandemic-induced supply chain snares then led to inflation, according to many economists. As a result, the Federal Reserve began jacking up interest rates, which eroded the value of many of Silicon Valley Bank’s assets.

This is because higher rates meant that new bonds and treasuries earned more for investors than older ones. As a result, the older assets that Silicon Valley Bank stockpiled became less desirable and therefore shed value.

Around the time that the Fed began tightening monetary policy, Silicon Valley began enduring a squeeze that led to belt-tightening and layoffs across the industry, contributing to Silicon Valley Bank’s woes.

Last week’s fever pitch

Against the backdrop of soaring interest rates and a tech bust, Silicon Valley Bank consistently downplayed risks to its underlying businesses throughout the last several months.

“We continue to see strength in our underlying business,” CEO Greg Becker said in January.

Despite the happy talk, Silicon Valley Bank’s bond sheet began falling underwater. This prompted them to sell $21 billion in bonds, cementing $1.8 billion in previously unrealized losses. The company announced some of those sales last Wednesday, with plans to seek $2.25 billion in additional equity to bolster its balance sheet.

Those revelations sparked a frenzy. Venture capital firms reportedly began advising clients to pull their money from Silicon Valley Bank, whose stock was thrust into a free fall. One of the notable actors to pull out was billionaire Peter Thiel’s Founders Fund.

On Thursday, customers withdrew $42 billion in a single day. For comparison, Washington Mutual “lost $16 billion over 10 days” during the financial crisis of 2008, according to Sen. Mark Warner (D-VA).

Silicon Valley Bank touted a balance sheet with $209 billion in assets and was the 16th largest federally insured bank in the U.S.

By the end of the day Thursday, Silicon Valley Bank had a $958 million negative cash balance, and its stock price had fallen about 60%. The following day, California regulators stepped in, shuttering the bank and putting it in receivership under the Federal Deposit Insurance Corporation. Trading in Silicon Valley Bank shares was also halted.

Authorities quickly began searching for a b