What to know about the spectacular collapse of Silicon Valley Bank Silicon Valley Bank was taken over by federal regulators on Friday, capping a spectacular collapse after the lender suffered a run on deposits.

A Silicon Valley lender collapsed after a run on the bank. Here's what to know

  • Download
  • <iframe src="https://www.npr.org/player/embed/1162599556/1162836551" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

SCOTT SIMON, HOST:

We are following news of a bank failure, the biggest since the global financial crisis 15 years ago. Silicon Valley Bank catered to some of the most powerful tech investors in the world. And yesterday, it collapsed. NPR's David Gura joins us now. David, thanks so much for being with us.

DAVID GURA, BYLINE: Happy to be here, Scott.

SIMON: Not one of the best-known names in banking, right?

GURA: No, this wasn't as widely known as Goldman Sachs or JPMorgan Chase, and it certainly wasn't as big as those firms. But in the world of tech, Silicon Valley Bank punched above its weight for 40 years, doing business with venture capital firms and the companies in their portfolios. So this was a very specialized bank with a very narrow expertise, elite clients. And it was a vital part of the tech ecosystem, which has been under a lot of pressure lately as the Federal Reserve has been raising interest rates to fight high inflation. We've seen less investment. Scott, and some of the biggest names in tech have laid off tens of thousands of workers.

SIMON: What seems to have led to the collapse?

GURA: I'll stick with interest rates 'cause that's the backdrop to all of this. When they're low, it is cheap to borrow money, and the availability of that fueled unbridled growth in the tech sector. Plus, during the pandemic, people were turning to Facebook and to Netflix to pass the time. That boosted profits at tech companies, which also helped Silicon Valley Bank. Well, now the situation has changed. Interest rates are much higher than they were. They're continuing to go up. And that means borrowing money is more expensive, and venture capitalists, the investors that make big bets on tech startups, they're keeping their powder dry. The demand for tech products has declined, which means that tech companies are getting more conservative with their money.

You know, recently, Silicon Valley Bank saw an uptick in withdrawals, which made executives at that bank worried. This week, its CEO said it had sold off a significant part of its bond portfolio to be able to handle these withdrawal requests. And it took a massive hit doing that, a nearly $2 billion loss. That news really spooked its customers. Even more of them pulled money out of the bank. And we got what's really a classic bank run - customers? Lining up, fearful they're not going to be able to get their money back. That hammered Silicon Valley's stock price, Scott. And on Thursday, it fell by 60%.

SIMON: And what seems to have prompted regulators to step in?

GURA: A growing fear of what could happen, that this could spread across the sector. There is this worry that other banks could see a run on their deposits, and regulators were worried about the risk of contagion. Thursday was a brutal day for banks - investors selling off shares of some of Silicon Valley Bank's midsize and regional competitors. And even the big banks saw their stock prices sink, although not as dramatically. Now, there is no indication other banks are in trouble. Bank analysts I talked to described what's been happening as panic selling, including Jared Shaw at Wells Fargo.

JARED SHAW: It's really just, you know, a fear that has gripped the market and is sort of self-perpetuating at this point.

SIMON: And what seems to be next, David?

GURA: Well, the Federal Deposit Insurance Corporation is effectively in control now. That's the FDIC, and it's created a new entity to manage the bank's assets. And the FDIC said that by Monday, Silicon Valley Bank clients who had insured deposits will be able to get their money back. But keep in mind, the FDIC typically only insures up to $250,000, and customers with deposits that exceed that amount - that's most of Silicon Valley Bank's clients - will face a lot more uncertainty.

It does seem, Scott, like regulators were able to forestall the contagion they were worried about. But I go back to that backdrop I mentioned. Interest rates have gone up. Federal Reserve Chair Jerome Powell said to Congress this week they're likely to go up even more than the Fed first expected. So the challenge here is not over for these banks that are adjusting to a new reality and also for their corporate clients, especially in tech.

SIMON: NPR David Gura, thanks so much.

GURA: Thanks, Scott.

Copyright © 2023 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.