SVB Collapse Explained in 5 Minutes

The shocking collapse of Silicon Valley Bank (SVB), one of the most influential banks in the startup ecosystem isn't too hard to explain. SVB's primary customers were startups, and it held accounts for about 50% of venture-backed startups. When the COVID-19 pandemic hit in 2020, startups raised a lot of money, resulting in a massive influx of about $198 billion into SVB. However, with the Federal Reserve cutting interest rates to stimulate the economy, SVB was forced to purchase billions of dollars in long-term bonds, which ultimately led to its downfall.

As interest rates started to rise, the value of SVB's long-term bonds began to decrease, making them less attractive to investors. Compounding this issue, startups were not raising as much money and were burning through their reserves, leading to a decrease in deposits into SVB. This situation left the bank in a precarious position - it had money locked away in long-term bonds, but selling them would result in a significant financial hit.

Desperate for liquidity, SVB chose to sell $21 billion in short-term securities and raised another $2 billion to cover its losses. Unfortunately, this decision coincided with the announcement of Silvergate Bank's closure, setting off a panic among SVB's investors. As news spread, investors and customers began texting each other to withdraw their funds from SVB, fearing the worst.

Within 24 hours, customers attempted to extract $42 billion from the bank. Unable to access the funds locked in long-term bonds, SVB was left with no choice but to enter receivership the following morning.

00:00 Introduction
00:16 Banks and Bonds
00:44 Silicon Valley Bank and Startups
01:23 SVB Buys Bonds
02:23 AFS and HTM Bonds
03:32 Venture Slowdown
03:48 SVB Bond Squeeze
04:32 Venture Meltdown

[josephxie]

Great video! Best summary I’ve seen regarding this topic.