The SVB bank collapse is explained by one bad bet colliding with one bad deposit base: Silicon Valley Bank invested its tech clients’ cash in long-term government bonds that lost enormous value when the Federal Reserve raised interest rates, and when depositors — most of them holding balances far above the $250,000 FDIC insurance cap — realized the bank was in trouble, they pulled roughly $42 billion in a single day. The California Department of Financial Protection and Innovation seized the bank on Friday, March 10, 2023, about 44 hours after the trouble became public. Federal regulators then invoked an emergency authority to guarantee every deposit, sold the bank to First Citizens, and billed the losses back to the rest of the banking industry.
A Deposit Base Unlike Any Other Bank’s
SVB served venture capital firms, private equity funds, and the startups they backed. That focus made it the go-to bank of the tech industry, but it also produced a deposit base that looked nothing like a normal bank’s. Instead of millions of small consumer accounts under the FDIC insurance limit, SVB held large corporate operating balances, and by the end of 2022 roughly 94 percent of its deposits were uninsured.1Federal Reserve OIG. Material Loss Review of Silicon Valley Bank
Uninsured depositors run first at the first sign of trouble, because they have the most to lose. SVB was built almost entirely of them.
The pandemic tech boom made the problem worse. Venture money flooded into startups in 2020 and 2021, and those startups parked their cash at SVB. Total deposits roughly tripled to about $189 billion by the end of 2021.2Federal Reserve Board. Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank – Section: Evolution of Silicon Valley Bank
The Interest Rate Bet That Broke the Balance Sheet
All that incoming cash had to go somewhere. SVB’s leadership poured it into long-duration U.S. Treasury bonds and mortgage-backed securities, locking in the low yields available at the time. The strategy worked only as long as rates stayed near zero. When the Fed began raising rates at the fastest pace in decades, the market value of those bonds dropped sharply.
Accounting rules softened the appearance of the damage. SVB classified a large share of the bonds as held-to-maturity, which meant they stayed on the books at their original cost instead of their market value.2Federal Reserve Board. Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank – Section: Evolution of Silicon Valley Bank More than 40 percent of SVB’s assets sat in that category, roughly double the industry average.3Federal Reserve Bank of Boston. Signs of SVB’s Failure Likely Hidden by Obscure HTM Accounting Designation On paper the capital ratios looked healthy. In economic reality, the gap between what those bonds were worth on the market and what SVB was carrying them for reached $15.1 billion by the end of 2022.
Risk Management and Supervisory Failures
The interest rate exposure did not have to be fatal. The failure to manage it made it so. Federal Reserve examiners flagged interest rate risk problems in SVB’s 2020, 2021, and 2022 examinations, but formal supervisory findings weren’t issued until November 2022, and a planned downgrade of the bank’s rating wasn’t even finalized before the collapse.4Federal Reserve. Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank
Inside the bank, the picture was worse. SVB removed its chief risk officer in 2022 and ran without one for months during the sharpest rate move in decades. A replacement wasn’t hired until January 2023, roughly two months before the failure.1Federal Reserve OIG. Material Loss Review of Silicon Valley Bank
The Fed’s own April 2023 review said its supervisors “did not fully appreciate the extent of the vulnerabilities” as the bank grew, and that the response, once problems were identified, was “too deliberative and focused on the continued accumulation of supporting evidence.” The review also pointed to regulatory tailoring after the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act, which had raised the asset threshold for enhanced prudential standards from $50 billion to $250 billion and reduced the scrutiny applied to banks of SVB’s size.4Federal Reserve. Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank
The 44 Hours That Ended the Bank
Tech’s fortunes shifted in 2022. Venture funding dried up, startups burned through their balances, and SVB’s deposit base began shrinking while its bond portfolio kept losing value.
On Wednesday, March 8, 2023, SVB’s parent company announced it had sold substantially all of its available-for-sale securities at a $1.8 billion loss and planned to raise $2 billion in new capital.1Federal Reserve OIG. Material Loss Review of Silicon Valley Bank The announcement was meant to calm markets. It did the opposite. The capital raise signaled desperation, and the realized loss hinted at the much larger unrealized losses still sitting in the held-to-maturity portfolio.
What followed was a bank run at digital speed. Venture capitalists and startup founders, tightly connected through group chats and social media, urged each other to pull their money. On Thursday, March 9, customers attempted to withdraw roughly $42 billion, close to a quarter of the bank’s total deposits, in a single day.5Department of Financial Protection and Innovation. California DFPI Announces Results from Review of the Supervision and Closure of Silicon Valley Bank No bank is built to survive that. On Friday, March 10, the California Department of Financial Protection and Innovation seized SVB and appointed the FDIC as receiver.6FDIC.gov. Failed Bank Information for Silicon Valley Bank, Santa Clara, CA
How the Government Protected Depositors
Under normal FDIC procedures, uninsured depositors would have waited months to recover whatever fraction could be salvaged from the bank’s assets. At a bank where 94 percent of deposits were uninsured, that meant thousands of companies unable to make payroll.
Over the weekend of March 11–12, the Treasury Secretary, the Federal Reserve Board, and the FDIC jointly invoked the Systemic Risk Exception, a rarely used authority that lets regulators guarantee all deposits when a failure threatens broader financial stability. Their joint statement, released Sunday evening, confirmed that every depositor would be made whole, said no taxpayer money would be used, and committed to recovering any losses to the Deposit Insurance Fund through a special assessment on banks.7Federal Reserve Board. Joint Statement by Treasury, Federal Reserve, and FDIC
The FDIC transferred all deposits and most assets to a newly created Silicon Valley Bridge Bank, which opened Monday, March 13. Depositors had full access to their funds that morning.8FDIC.gov. FDIC Acts to Protect All Depositors of the Former Silicon Valley Bank
Alongside the depositor guarantee, the Federal Reserve launched the Bank Term Funding Program on March 12, 2023 to stop the same liquidity crisis from repeating at other banks. The program let banks borrow against Treasury bonds and mortgage-backed securities at par value rather than their depressed market value, with no haircuts on collateral.9Federal Reserve. Bank Term Funding Program Frequently Asked Questions It stopped making new loans on March 11, 2024, as scheduled.10Federal Reserve Board. Federal Reserve Board Announces the Bank Term Funding Program Will Cease Making New Loans as Scheduled on March 11
The Contagion: Signature and First Republic
SVB’s failure did not stay contained. Signature Bank, a New York institution with heavy reliance on uninsured deposits and rapid growth without adequate risk controls, was closed by the New York Department of Financial Services on March 12, 2023, two days after SVB.11FDIC.gov. FDIC Releases Report Detailing Supervision of the Former Signature Bank The Systemic Risk Exception was invoked for Signature as well, and its deposits and certain assets were sold to Flagstar Bank on March 19.
First Republic Bank, which had a similar profile of wealthy clients and large uninsured deposit concentrations, held on longer. Despite a $30 billion emergency deposit from a consortium of large banks, First Republic was seized on May 1, 2023, and JPMorgan Chase acquired most of its assets, including $173 billion in loans and $92 billion in deposits, paying the FDIC $10.6 billion. The three failures were the second, third, and fourth largest in U.S. history.
Who Ended Up With SVB
The bridge bank operated for just over two weeks before the FDIC found a buyer. On March 26, 2023, First Citizens Bank & Trust Company agreed to acquire substantially all of the bridge bank’s loans and deposits, and the 17 former SVB branches reopened as Silicon Valley Bank, a division of First Citizens.12FDIC.gov. First-Citizens Bank and Trust Company, Raleigh, NC, to Assume All Deposits and Loans of Silicon Valley Bridge Bank
The deal terms showed how badly the assets had deteriorated. First Citizens bought about $72 billion of the bridge bank’s assets at a $16.5 billion discount. Roughly $90 billion in securities and other assets stayed in FDIC receivership for later sale. The FDIC also received equity appreciation rights in First Citizens’ parent worth up to $500 million.12FDIC.gov. First-Citizens Bank and Trust Company, Raleigh, NC, to Assume All Deposits and Loans of Silicon Valley Bridge Bank The FDIC estimated the total cost of the SVB failure to the Deposit Insurance Fund at approximately $20 billion.
Who Paid the Bill
The joint statement had promised no taxpayer money would cover the losses. The FDIC kept that promise by imposing a special assessment on the banking industry to recover the losses attributable to protecting uninsured depositors at SVB and Signature. The original estimate came to $16.3 billion.13Federal Register. Special Assessment Pursuant to Systemic Risk Determination
The assessment applied to roughly 114 banking organizations, all with uninsured deposits above $5 billion at the end of 2022. Banks with total assets under $5 billion were exempt. The FDIC set a quarterly rate of 3.36 basis points on each institution’s uninsured deposits above the $5 billion threshold, collected over eight quarterly periods beginning in 2024.13Federal Register. Special Assessment Pursuant to Systemic Risk Determination By September 2025, the FDIC revised the total estimated cost upward to approximately $16.7 billion.14FDIC.gov. FDIC Board of Directors Issues an Interim Final Rule to Amend the Collection of the Special Assessment
What Changed Afterward
The failure reset how the tech industry manages cash. Before March 2023, many startups kept everything at a single bank, often SVB itself. After the collapse, deposit diversification became standard practice, with venture firms pushing portfolio companies to spread balances across multiple institutions and to treat the $250,000 FDIC insurance limit as a practical ceiling per account.
Regional bank stocks fell sharply in the days after the closure as investors hunted for similar vulnerabilities: heavy uninsured deposit concentrations, large unrealized bond losses, or both. Some of the banks caught in that selloff had genuinely similar profiles, others didn’t.
On the regulatory side, the Fed’s own post-mortem concluded that supervision had been too slow and too deferential, and that the 2018 asset-threshold change had reduced scrutiny of banks in SVB’s range. The review recommended re-evaluating those thresholds and moving faster once problems are identified. Whether those recommendations translate into lasting regulatory change is still open, with recent proposals moving in different directions on capital requirements and supervisory thresholds for large banks.4Federal Reserve. Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank