Silicon Valley Bank fails in largest bank collapse since 2008

Silicon Valley Bank was placed under FDIC receivership on the morning of March 10 2023 after a $42B deposit run on March 9 caused it to be unable to meet withdrawal demands. The bank had been the 16th largest in the US with $209B in assets. Its collapse was driven by duration mismatches: long-dated Treasury and MBS holdings had substantial unrealized losses from the 2022 rate hike cycle, and when deposits began fleeing, SVB was forced to realize those losses through fire sales, triggering a classic bank run.

The session saw regional banks (KRE) fall 5.01% as contagion concerns spread across the sector. First Republic, Signature Bank, and other deposit-franchise banks saw their stocks drop 15-30%. The 10Y Treasury yield fell 27 bps as flight-to-quality flows accelerated, partially offsetting the risk-off pressure on broader markets. The 2Y yield fell 28 bps, one of the largest single-day declines on record.

Over the following weekend, regulators announced a systemic risk exemption allowing all SVB depositors to be made whole regardless of FDIC insurance limits, and launched the Bank Term Funding Program (BTFP) providing banks with liquidity against Treasury and MBS collateral at par value. Signature Bank was also seized. The interventions arrested the run but triggered a reassessment of Fed tightening capacity, effectively ending the 2022-2023 cycle.