Snippet: Silicon Valley Bank is Shut Down by Regulators in Biggest Bank Failure Since Global Financial Crisis ☇

Shared on March 12, 2023

John Gruber:

To say this is shocking is an understatement. This just shouldn’t happen to a bank. To make a long story short (and to be honest I’m cribbing this from a summary my pal Ben Thompson wrote in a private group chat), SVB took in a ton of cash during the COVID bubble, and because they couldn’t make money loaning that money at the time, they bought a bunch of corporate bonds and mortgage-backed securities. The problem is they bought those securities when interest rates were still at historical lows. Today, with higher interest rates, those securities are underwater — they’d lose a fortune selling them now before maturity. SVB would’ve been fine if they’d been able to let those securities mature for their full 10 years (or whatever the terms were). But withdrawals are up because startups are having trouble raising money, so SVB did an equity raise to fill the gap, but screwed up — to say the least — by announcing the equity raise before it was officially completed. At this point their stock tanked, the equity partner pulled out, and their customers started a run on the bank — and a bank run was the one thing SVB couldn’t withstand. Within 24 hours they went from “having a bad quarter” to “failed bank”.

This is a very good one-paragraph explainer about what happened with Silicon Valley Bank. For me, it’s surprising how big it was (sixteenth largest), yet not really a household name. That puts it ahead of a lot of other institutions that many are familiar with, either regional banks or strong players in a particular segment. Nonetheless, I hope this doesn’t create a domino effect, but with news that Roku had $487 million in SVB, one can only wonder what other tech companies are going to have a rough Monday.

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