Inside the Shocking Collapse of Silicon Valley Bank - What Went Wrong?

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The collapse of Silicon Valley Bank on Friday sent shockwaves throughout the tech industry and beyond, causing panic among startup founders and investors alike. Known for its startup lending and financing services, SVB was a vital resource for many fledgling businesses looking to get their ideas off the ground. But what exactly went wrong and just how did SVB become financially strapped and find itself on the verge of an implosion? We’ve detailed all of these and more in this video. So, buckle up,, and let’s get right to it!

SVB's sudden downfall was a classic scenario of mismanagement and overextension. The bank had taken on too many risky loans and investments, causing its books to become unbalanced and leaving the bank dangerously exposed. When investors caught wind of these issues, they quickly pulled their money out of the bank, triggering a run that ultimately left SVB unable to pay its account holders. Now, the collapse of such a major institution is sure to have a ripple effect throughout the financial world, especially as many investors and businesses take drastic measures in the aftermath of the sudden loss of a trusted financial partner. SVB has now come under the control of the Federal Deposit Insurance Corp, with the FDIC quickly stepping in within hours of the collapse and taking over control of all of the bank’s assets.
According to SVB's last annual report, the bank had a staggering $173 billion in deposits at the time of its collapse. However, only $18 billion of that was insured by the FDIC, leaving the vast majority of account holders at risk of losing their savings. As it stands, only a fraction of account holders will be able to access their insured funds through a new entity starting on Monday, and those with more than $250,000 in the bank may face a longer wait to recoup their losses. This is especially as only the maximum FDIC insurance coverage is available to be paid back to account holders, making more dampening the possibility that some customers may not ever receive all of their money back.
Now let’s take a step back and rewind to see just how all of SVB’s problems that have now made it to daylight began. Silicon Valley Bank, or SVB for short, was a trailblazer in the banking world, disrupting the traditional banking model and creating a new paradigm for financial institutions. By focusing exclusively on tech startups, SVB was able to penetrate a market that was largely ignored by other banks. This gave the bank a significant advantage over its competitors and enabled it to become the go-to bank for startups and venture capital firms. SVB's unconventional approach to lending and investing allowed it to work with high-risk startups that were overlooked by larger, more conservative banks.
This gave the bank a reputation for being a risk-taker, endearing it to entrepreneurs looking for a partner that shared their vision and ambition. However, SVB's daring strategy also came with its share of challenges. The bank's heavy reliance on long-term bonds as a source of income made it vulnerable to fluctuations in interest rates. When the Federal Reserve began to raise interest rates, SVB's bond portfolio took a hit, leading to a massive loss in its balance sheet. Despite these setbacks, SVB continued to innovate and adapt, finding new ways to serve its clients and stay ahead of the curve. In fact, the bank's resilience and tenacity became the most endearing testament to its commitment to its clients and its unwavering belief in the power of technology and entrepreneurship.
But this is where it gets even more interesting. So, SVB Financial's holding company of SVB, hit rock bottom after its stock plummeted by 60% on Thursday. Now, this is coming after an ongoing crisis involving the company announcing a plan to raise $2.25 billion in stock to make up for its massive losses. However, SVB’s financial troubles were not just tied to its loans to tech companies going bust but also a series of other unforeseeable financial factors that have now led to its ultimate demise. But let’s take it back a little bit further. You see, while the tech industry flourished, Silicon Valley Bank experienced an influx of deposits, causing it to invest in long-term bonds to increase its returns on assets. Unfortunately, this strategy backfired when interest rates dropped to historic lows.