What SVB’s Failure Means for the Bank and Its Clients

Regulators have long warned that the end of rock-bottom interest rates could cause sudden crises in unexpected corners of global finance. So when Silicon Valley Bank (SVB) failed in the face of a funding crunch, investors wondered if its plight was a harbinger of broader trouble. Major banks are much better capitalized than they were before the global financial crisis, and SVB’s deposit base was unusually concentrated in venture-backed startups. But the selloff in bank shares that followed SVB’s woes reflected worries that the ripple effects of interest-rate hikes could hurt at least the most vulnerable lenders, and prompted an emergency package of support from US regulators.

As the only publicly traded bank focused on Silicon Valley and new tech ventures, SVB was deeply embedded in the US startup scene. According to its website, it did business with nearly half of all US venture capital-backed startups and 44% of US venture-backed tech and health-care companies that went public last year. Its website lists Shopify, VC firm Andreessen Horowitz and cybersecurity firm CrowdStrike Holdings among its clients. On March 8, its parent company, SVB Financial Group, announced it had sold $21 billion of securities from its portfolio at a loss of $1.8 billion and would sell $2.25 billion in new shares to shore up its finances. That unnerved a number of prominent venture capitalists, including Peter Thiel’s Founders Fund, Coatue Management and Union Square Ventures, which were said to have instructed their portfolio businesses to pull their cash from the bank. By March 10, the effort to raise new equity or find a buyer had been abandoned, and the bank was put into receivership by the Federal Deposit Insurance Corp.