By Kiannah Wierzchowski, Staff Writer & Illustrator
A few weeks ago Thursday, March 9, a $42 billion total was withdrawn from the Silicon Valley Bank by the end of the day, causing the largest U.S. bank failure since 2008.
The day before, Wednesday, Silicon Valley Bank released a “Mid Quarter Update” looking to raise $2 billion to reduce inflation. For lack of better phrasing CNBC explains, “… the latest fallout from the Federal Reserve’s actions to stem inflation with its most aggressive rate hiking campaign in four decades. The ramifications could be far-reaching, with concerns that startups may be unable to pay employees in coming days, venture investors may struggle to raise funds…” Explaining the SVB’s most aggressive attempt to slow down inflation, with outcomes that could negatively impact funding.
With this, thousands of clients were quickly taking money out of the bank in a panic to keep their companies paid. The Silicon Valley Bank then found itself short on money, resorting to it being “… forced to sell all of its available-for-sale bonds at a $1.8 billion loss…” Venture capitalists, people who help build strength in companies, advised their companies to move the funds due to the bank run possibility, which “… could pose an existential threat to startups who couldn’t tap their deposits.”
Thus, the $42 billion was withdrawn from the bank by the next day. By the end of the business day, Silicon Valley Bank had a negative cash balance of $958 million.
After, Thursday evening some SVB customers received emails saying, “I’m sure you’ve been hearing some buzz about SVB in the markets today so wanted to reach out to provide some context,” one SVB banker wrote to a client, according to a copy of the message obtained by CNBC. “It is business as usual at SVB” it continued, underplaying the situation, but understandably trying to keep clients calm.
Falvey, who started his career at Wells Fargo, as well as consulted for a bank that suffered during a financial crisis said that Silicon Valley Bank’s mid-quarter update gave him confidence. The bank would have been able to make ends meet for its depositors.
Those who still stuck with SVB during and after the bank run now faces the question of when they’ll be receiving their money. SVB seemed to be unsure when the bank users would get their money back as well. “The precipitous deposit withdrawal has caused the Bank to be incapable of paying its obligations as they come due,” the California financial regulator stated. “The bank is now insolvent.”
Silicon Valley Bank is still in its recovery phase.