The Collapse of Silicon Valley Bank: What Went Wrong

Bernardo Monteiro
Jul 2
4 min read

Cracked dollar signs on rubble, red downward graph, flames behind Silicon Valley Bank. Mood of financial crisis, dominant orange hues.

In March 2023, one of the largest banks supporting major technology startups—and the top bank by deposits in Silicon Valley—faced one of the biggest financial crises in recent U.S. history.

Founded in 1983 in Santa Clara, California, the bank served as the financial backbone for roughly 50% of all venture capital funds related to technology and life sciences in the U.S. It also had international recognition, particularly in the UK and other parts of Europe. By the end of 2022, it was considered the 16th largest bank in the United States.

Why Banks Are Vulnerable to Collapse

Banks act as intermediaries, taking in deposits and lending that money to borrowers. This business model makes them inherently vulnerable for three key reasons. First, demand deposits can be withdrawn at any time. Second, a bank’s assets—like loans and securities—are generally illiquid, meaning they are difficult and expensive to convert into cash quickly. Third, banks often rely on short-term deposits to fund long-term investments. The difference between the interest they pay on deposits and the interest they earn from loans is how they generate profit (Turner 2023).

Silicon Valley Bank — On March 10, 2023, federal regulators announced that the bank had collapsed, ordering it to shut down operations (Evans 2025)

To better understand the crisis, it helps to look at how surplus funds are used. In traditional banking, surplus includes money in savings accounts and certificates of deposit, which is then used to extend loans to other customers. Outside of traditional banking, surplus can be invested in industries like private equity, venture capital, or real estate. These options may offer higher returns—but they also come with a greater risk of loss (Šarkauskaitė 2023).

Largest commercial banks in the U.S. data — Largest commercial banks in the United States in 2024, by revenue (in billion U.S. dollars)

A Risky Model Backfires

Silicon Valley Bank focused its operations on startups, especially in the tech and life sciences sectors. This meant a large portion of its deposits were above $250,000—exceeding the FDIC’s insured limit (Turner 2023).

Internal decisions also played a role in SVB’s collapse. The bank leaned heavily on high-risk strategies such as venture capital and commercial loans—approaches already criticized during the 2008 financial crisis. Despite their risky nature, SVB stuck with these methods and, between 2017 and 2021, saw deposits surge from $44 billion to $189 billion. However, instead of placing this influx into traditional, lower-risk investments, SVB chose to pursue riskier, non-traditional avenues—a strategy that would later backfire.

Poor financial and business management also contributed. In an effort to expand nationally, the bank took on high operational costs, weakening its financial foundation. Mismanagement was further reflected in how it handled the surplus funds, diverting them from traditional uses (Wang 2024).

Interest Rate Shocks and Bond Losses

External factors also played a key role. In March 2022, the Federal Reserve began raising interest rates—from 0.5% to 4% by November. This rate hike reduced the value of SVB’s bond portfolio, most of which was classified as held-to-maturity (HTM). As mentioned earlier, HTM assets are illiquid and risky during financial stress.

As news spread that SVB’s bond values were falling, depositors panicked and began withdrawing their funds. To meet the sudden demand, SVB was forced to sell its HTM bonds and reclassify them as available-for-sale (AFS)—a move that resulted in heavy losses (Huynh 2024).

Why did this cause such a loss? HTM bonds are accounted for at their original cost, regardless of market fluctuations, as long as the bank holds them until maturity. AFS bonds, however, are marked to market, meaning SVB had to report the current (and lower) market value—creating an immediate loss. Since 78% of SVB’s bond holdings were HTM, the impact was massive (American Deposit Management 2024).

A $42 Billion Bank Run

After selling the bonds, SVB reported a $21 billion loss from its securities portfolio, which had an average yield of just 1.79%—far below the 10-year Treasury yield of 3.9%. The bank also disclosed a $1.8 billion shortfall and, on March 8, 2023, announced plans to sell $2.25 billion in shares to shore up its balance sheet.

This announcement triggered panic. On March 9 alone, depositors withdrew $42 billion. By March 10, the bank was declared a failure. In response, federal agencies such as the FDIC and Federal Reserve stepped in, guaranteeing all deposits to prevent a wider collapse in the banking system.

Global Repercussions

The collapse of SVB had international ripple effects. In the UK, regulators announced tighter rules for banks holding large amounts of high-value, instant-access deposits. The Bank of England declared that international banks with over £300 million in such deposits from individuals and small businesses would now need to establish a UK-based subsidiary with its own capital and stricter oversight—ensuring better local control in case of crisis (Arnold 2025).

The Bank of England is the UK’s central bank, responsible for monetary policy and financial stability

The Bottomline

The SVB crisis was not a sudden event, but rather the result of years of poor internal management and risky decision-making. The bank prioritized faster profits by moving away from traditional investments and relying heavily on illiquid assets. This strategy made the institution especially vulnerable when the U.S. Federal Reserve sharply increased interest rates. As the value of SVB’s bonds dropped, depositors panicked and began withdrawing their funds. To meet these sudden withdrawals, the bank was forced to reclassify its HTM (held-to-maturity) bonds as AFS (available-for-sale), resulting in a $1.8 billion loss.

To recover, SVB announced plans to sell $2.25 billion in financial shares. However, this only intensified depositor fears—triggering a $42 billion bank run on March 9. The next day, SVB was officially declared a failure.

The fallout from the crisis extended beyond the U.S., prompting countries like the UK to implement new financial regulations aimed at preventing similar collapses in the future.