Silicon Valley Bank collapse: a timeline

A bank for US tech startups quickly fizzled out this week, leaving its powerful clients and investors in limbo.

The Silicon Valley bank, facing a banking windfall and capital crisis, collapsed Friday morning and was taken over by federal regulators.

It was the biggest failure of a US bank since Washington Mutual in 2008.

Here’s what we know about the bank’s collapse and what could happen next.

WHAT IS SVB?

SVB was founded in 1983 and specializes in banking for technology startups. It funded almost half of the US venture capital technology and healthcare companies.

Relatively unknown outside Silicon Valley, SVB was among the top 20 U.S. commercial banks with total assets of $209 billion at the end of last year, according to the FDIC.

WHY DID IT CHANGE?

In short, SVB encountered a classic run in the bank.

The longer version is a bit more complicated.

Several forces clashed to bring down the banker.

First, there was the Federal Reserve, which began raising interest rates a year ago to tame inflation. The Fed moved aggressively and higher borrowing costs dampened the momentum in tech stocks that had benefited SVB.

High interest rates also eroded the value of long-term bonds that SVB and other banks had eaten during a period of ultra-low, near-zero interest rates. SVB’s $21 billion bond portfolio averaged 1.79% yield; The current yield on the 10-year Treasury is about 3.9%.

At the same time, venture capital began to dry up, forcing startups to withdraw funds held by SVB. So the bank was sitting on a mountain of unrealized bond losses just as the pace of customer withdrawals was rising.

Panic has taken root…

SVB said on Wednesday that it had sold a number of securities at a loss and that it would also sell $2.25 billion in new shares to shore up its balance sheet. That caused panic among major venture capital firms, which reportedly advised companies to pull their money out of the bank.

The bank’s stock began to fall sharply on Thursday morning, dragging other bank stocks by the afternoon as investors began to fear a repeat of the 2007-08 financial crisis.

Trading in SVB’s shares was halted Friday morning, and it has abandoned efforts to quickly raise capital or find a buyer. California regulators stepped in, closing the bank and placing it under the federal deposit insurance corporation.

CONTAGIOUS FEARS ARRIVE

Despite the initial panic on Wall Street, analysts say SVB’s collapse is unlikely to cause the kind of domino effect that gripped the banking industry during the financial crisis.

“The system is as well capitalized and liquid as it’s ever been,” said Mark Zandi, chief economist at Moody’s. “Banks in trouble now are too small to pose a meaningful threat to the wider system.”

No later than Monday morning, all insured depositors will have full access to their insured deposits, according to the FDIC. It will “prepay” uninsured depositors in the coming week.

WHAT’S NEXT?

So while a wider spread is unlikely, smaller banks disproportionately tied to cash-strapped industries like tech and crypto could have a rough ride, according to Ed Moya, senior market analyst at Oanda.

“Everybody on Wall Street knew that the Fed’s rate hike was going to break something eventually, and right now it’s destroying small banks,” Moya said Friday.

The FDIC typically sells a failed bank’s assets to other banks, using the proceeds to repay depositors whose funds are not insured.

A buyer may yet emerge for SVB, though it is far from guaranteed.