2023 Silicon Valley Bank Collapse

Silicon Valley Bank's collapse in March 2023 was the first banking crisis of the new rate regime. SVB held $175 billion in deposits concentrated in venture-backed tech companies. As rates rose in 2022, two problems compounded: (1) SVB's $120B bond portfolio lost mark-to-market value (though held-to-maturity accounting hid the losses), and (2) SVB's depositor base, venture-backed startups burning cash, began withdrawing funds as VC funding dried up. The bank run was unprecedented in speed. On Thursday March 9, depositors withdrew $42 billion in a single day, 25% of the bank's deposits. The concentrated, uninsured, and digitally-connected depositor base created a run dynamic no previous bank had experienced. By Friday morning, SVB was seized by regulators. Signature Bank followed on Sunday. The Fed's response, the Bank Term Funding Program (BTFP), let banks borrow against Treasury collateral at par value instead of mark-to-market. This was a fundamental change to the liquidity backstop: banks no longer had to realize losses on underwater bond portfolios during a liquidity event. The Treasury and FDIC invoked the systemic risk exception to guarantee all uninsured deposits at SVB and Signature. The crisis was contained within weeks but had durable implications. Regional bank stocks remained impaired. First Republic Bank was seized and sold to JPMorgan in May 2023. Bank lending standards tightened significantly. The Fed pivoted messaging to acknowledge financial stability alongside inflation as dual considerations. The commercial real estate exposure of small and mid-sized banks remained a slow-burning concern.