Collapse of Silicon Valley Bank

A bank run that brought down the 16th largest bank in the US

On 10th of March, 2023 Silicon Valley Bank (SVB), headquartered in Santa Clara, California was closed by regulators due to a run on its deposits. In the pre-market trading the stock had tumbled 60%. At open, trading was halted on the stocks pending news. The day prior, it had fallen 62%. On its final trade it traded at $106.04. This was a massive drop compared to its all time high price of $763.22 that it had traded barely a year and a half back. And its all-time high was a huge upside from the covid pandemic low of $127.39. So, what happened? After all it was not an unprofitable, small company - it was the 16th largest bank in the US at the time of its closure.

Full lifetime performance of the SIVB stock chart - on Yahoo Finance

To better understand it’s collapse, we’ll have to go back in time and put together the events that lead to its final collapse.

Timeline

Below is a timeline of how this collapse came about.

October 17, 1983:

Silicon Valley Bank founded.
Going with the spirit of its name and founding location the bank focussed on banking the innovation economy. As that economy grew, so did the bank.

OctOBER 23, 1987:

The company went public via an IPO - symbol: SIVB

Early 2020:

SIVB stock was trading at around $270.00 prior to the covid pandemic shock tanking the markets
Covid pandemic hits the world, Governments react by mandating physical lockdown to stem the health risk contaigion, and distributing stimulus to support the economy during this time. Central banks (including the Fed) react by lowering interest rates and growing their balance sheet. Easy money starts to seep into all corners of the system
SIVB stock went down to $127.39 at the bottom

Mid/Late-2020 onwards:

Abundance of capital while supporting the world economy, kicks off an unprecedented growth engine (in specific sectors - including startup economy) - existing businesses grew, and hoards of new ones got created/funded

Late 2020 onwards:

Fed indicated it was not even “thinking about thinking about” interest rate hikes
SVB took in tens of billions of dollars from its venture capital clients and then, confident that rates would stay steady, plowed that cash into longer-term bonds. ASSUMPTION: Interest rates will remain low for a long time

March, 2021:

The bank’s total deposits exploded higher over the prior 12 months, to about $124 billion from $62 billion, according to data compiled by Bloomberg. That 100% surge far outpaced a 24% increase at JPMorgan Chase & Co. and a 36.5% jump at First Republic Bank, another California institution.

November 16, 2021:

Stock reaches the peak of $763.22

SIVB stock prices in the last 5 years up to the point of its collapse - A viewed on TradingView.com

January, 2023:

According to regulatory filings, as of December, more than 95% of the bank's deposits were uninsured. This would remain a key risk of the bank’s asset/liability structuring.
SVB confirms hiring of Chief Risk Officer (after that position being left vacant for sometime)

January 26, 2023:

An executive trading plan filed by the CEO with the SEC under Rule 10b5-1 for selling of shares.

Week of Feb 27, 2023:

Moody's Investors Service reportedly informed SVB Financial, the bank's holding company, that it was facing a potential downgrade of its credit rating because of its unrealized losses.

February 27, 2023:

SVB Financial Group CEO Greg Becker sold 12,451 shares of company stock, worth $3.6 million (through the executive trading plan submitted on Jan 26).

March 8, 2023 (Wed):

It was announced that Silvergate Bank would wind down its operations and liquidate. This brings in a sense of concern to the market - a context that would result in bad timing for any news coming out of Silicon Valley Bank.
Rumors emerge of liquidity concerns with Silicon Valley Bank
Moody’s assigned an A3 rating to SVB Financial. This was a reputable rating, more than three grades into investment grade.
SVB, along with its adviser, Goldman Sachs Group Inc., decided to sell the portfolio and announce a $2.25 billion equity deal
SVB announced it had sold over $21 billion worth of its investments, borrowed $15 billion, and would hold an emergency sale of its stock to raise $2.25 billion.
By 11:59 PM EST - Founders Fund, the venture capital fund co-founded by Peter Thiel, advised portfolio companies to pull money from Silicon Valley Bank amid concerns about its financial stability, according to people familiar with the situation.

March 9, 2023 (Thu):

By Morning - According to Bloomberg, "Founders Fund withdrew all its funds from Silicon Valley Bank" by the morning of March 9th.
Run-on-the-bank: Customers withdrew $42 billion, leaving the bank with a negative cash balance of about $958 million.
Afternoon: SVB was reaching out to its biggest clients, stressing that it was well-capitalized, had a high-quality balance sheet and “ample liquidity and flexibility,” according to a memo viewed by Bloomberg. Becker had a conference call in which he urged people to “stay calm.”
By 4:00 PM EST - Shares tumbled by 60%
By Evening: Some SVB customers received emails assuring them that it was “business as usual” at the bank.

Stock price chart of SIVB stock during February, 2023 up to 8th of March, 2023 - on Yahoo Finance

March 10, 2023 (Fri):

By 9:30 AM EST - SVB stock plummeted 68% during Friday's premarket trading session
By 9:53 AM EST - Stock halted on imminent news
SVB fails to raise capital - SVB abandoned the planned equity raise after shares tumbled more than 60% on Thursday
By 11:00 AM EST - Examiners from the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) arrived at the offices of SVB to assess the company's finances.
By 12:00 PM EST - The California Department of Financial Protection and Innovation (DFPI) issued an order taking possession of SVB, citing inadequate liquidity and insolvency, and appointed the FDIC as receiver.
The FDIC established the Deposit Insurance National Bank of Santa Clara to re-open the bank's branches the following Monday and enable access to insured deposits. The failure of SVB was the largest of any bank since the financial crisis of 2007–2008 and the second-largest in U.S. history.
By 7:18 PM EST - Moody's slashed its credit ratings on Silicon Valley Bank's long-term local currency bank deposit to Caa2 from A1 and issuer ratings to C from Baa1.
By 10:15 PM EST - The bank's CEO Greg Becker was removed from the board of directors of the San Francisco Federal Reserve.

March 12, 2023 (Sun):

By 11:10 AM EST - Treasury Secretary Janet Yellen said that the federal government would not bail out Silicon Valley Bank, but is working to help depositors who are concerned about their money.
By 12:15 PM EST - Janet Yellen says she has been ‘working all weekend with our banking regulators to design appropriate policies’ to address depositors
By 6:16 PM EST - In a joint statement by the Department of the Treasury, Federal Reserve, and FDIC, the regulators said that all depositors will be protected, and that there would be no bailouts and no taxpayer costs associated with any of the new plans

March 13, 2023 (Mon):

The FDIC transferred SVB assets to a new bridge bank, Silicon Valley Bridge Bank, N.A., and appointed Tim Mayopoulos as CEO.
After a bidding process, it was announced that HSBC UK had agreed to acquire Silicon Valley Bank UK for £1 in a rescue deal, at no cost to taxpayers and with depositors fully protected.
Canadian regulator Office of the Superintendent of Financial Institutions seized the assets of SVB's Toronto branch on March 12.

March 14, 2023 (Tue):

On March 13, the Federal Reserve Board of Governors announced an investigation by Vice Chair for Supervision Michael Barr into supervision and regulation of the bank, which will be released publicly by May 1.

March 17, 2023 (Fri)

Silicon Valley Bank's former parent company, SVB Financial Group, filed for Chapter 11 bankruptcy
- Not included in the bankruptcy:
  - SVB Capital
  - SVB Securities
  - Silicon Valley Bridge Bank or SVB Private

March 26, 2023 (Sun)

The FDIC announced that First Citizens BancShares would acquire the commercial banking business of SVB
- Included in the deal:
  - $119 billion in deposits
  - $72 billion of SVB's loans discounted by $16.5 billion
- Not included in the deal:
  - $90 billion of SVB's securities remain - that remains in receivership

Collapse of Silicon Valley Bank (SIVB) - The Timeline