A graphic that goes through the events that contributed to the fall of Silicon Valley Bank.
The fall of Silicon Valley Bank
During the pandemic interest rates were low and
venture capitalists were investing heavily in tech
startups. SVB bank was a favorite of both investors
and start-ups who deposited their funds in the bank.
SVB moved those deposits into long-term,
government backed-debt securities, like mortgage
bonds or US treasuries.
When the fed started raising interest rates, the
value of those bonds fell and money became
more expensive for investors. VC funding slowed.
Tech companies started withdrawing deposits.
With the value of their bonds dropping, SVB
received a call from Moody’s that their credit
was going to be downgraded.
To fund its balance sheet flexible so investors
and clients would not be spooked, SVB sold
more then $20 billion bond portfolio consisting
mostly of U.S. Treasuries at an $1.8 billion loss.
Then, to raise capital. SVB announced a sale $2.25
billion in stock stock sale but it’s shares fell 60%
that day as investors lost confidence.
California banking regulators closed the bank on
Friday and appointed the Federal Deposit Insurance
Corporation (FDIC) receiver.
Source: REUTERS
The path to the fall of Silicon Valley Bank
Silicon Valley Bank is a 40-year old commercial bank. It is estimated that roughly half of US venture back startups were among its customers.
During the pandemic interest rates were
low and venture capitalists were investing
heavily in tech startups. SVB bank was a
favorite of both investors and start-ups
who deposited their funds into the bank.
SVB moved those deposits into long-term,
government backed-debt securities, like
mortgage bonds or US treasuries.
When the fed started raising interest
rates, the value of those bonds fell and
money became more expensive for
investors. VC funding slowed.
Tech companies started withdrawing
deposits. With the value of their bonds
dropping, SVB received a call from Moody’s
that their credit was going to be downgraded.
To fund its balance sheet flexible so
investors and clients would not be
spooked, SVB sold more then $20 billion
bond portfolio consisting mostly of U.S.
Treasuries at an $1.8 billion loss.
Then, to raise capital. SVB announced
a sale $2.25 billion in stock stock sale
but it’s shares plummeted 60% that
day as investors lost confidence.
California banking regulators closed the bank
on Friday and appointed the Federal Deposit
Insurance Corporation (FDIC) receiver.
Source: REUTERS
The path to the fall of Silicon Valley Bank
Silicon Valley Bank is a 40-year old commercial bank. It is estimated that roughly
half of US venture back startups were among its customers.
During the pandemic interest rates were low and
venture capitalists were investing heavily in tech
startups. SVB bank was a favorite of both investors and
start-ups who deposited their funds into the bank.
SVB moved those deposits into
long-term, government
backed-debt securities, like
mortgage bonds or US treasuries.
When the fed started raising interest rates, the
value of those bonds fell and money became
more expensive for investors. VC funding slowed.
Tech companies started withdrawing deposits.
With the value of their bonds dropping, SVB
received a call from Moody’s that their credit
was going to be downgraded.
To fund its balance sheet flexible so investors
and clients would not be spooked, SVB sold
more then $20 billion bond portfolio consisting
mostly of U.S. Treasuries at an $1.8 billion loss.
Then, to raise capital. SVB
announced a sale $2.25 billion
in stock stock sale but it’s shares
plummeted 60% that day as
investors lost confidence.
California banking regulators closed the bank on
Friday and appointed the Federal Deposit Insurance
Corporation (FDIC) receiver.
Source: REUTERS