We talked the other day about the mechanics of Silicon Valley Bank’s failure. Those mechanics are that a lot of depositors asked for their money back one Thursday, and SVB didn’t have enough money to give them: It ended the day with negative money, and was shut down by its regulators. This is a somewhat weird thing to happen in a modern banking system: Silicon Valley Bank had lots of valuable, safe, liquid assets, and it is a US bank with access to the Federal Reserve. It seems like it should have been fairly straightforward for SVB to pledge those assets to the Federal Reserve to borrow enough money to meet its deposit outflows.
And in fact SVB tried to do that, and it apparently did have enough collateral to borrow enough money to pay out its depositors that Thursday, though I’m not sure it would have survived the weekend. But the problem, that Thursday, was not that SVB had insufficient assets; the problem was that the Fed’s computer systems stopped working at 4 p.m. California time, and SVB missed the cutoff to transfer assets and borrow money. Silicon Valley Bank certainly had financial problems — the Federal Deposit Insurance Corp. finally sold it off yesterday for something like negative $20 billion! — but the reason it failed that day was mostly operational, not financial.
