(NewsNation) — The collapse of California-based Silicon Valley Bank sent shockwaves through financial communities both in the U.S. and globally.
As investors express shock over the second-biggest bank failure in U.S. history, some wonder if there were warning signs about SVB that were missed before it went under.
Here, we take a look at events that came before the collapse and examine what factors experts think led up to it.
Oct. 17, 1983
Silicon Valley Bank is founded. It was created by Bill Biggerstaff and Robert Medearis specifically to help startups. It began serving the startup market during a time when it was overlooked by the financial services industry. While the bank’s main strategy starting out was to collect deposits from businesses financed through venture capital, it expanded into banking, and began financing venture capitalists themselves, according to Zippia.com. From there, SVB expanded and started adding services that let the bank keep clients as they “matured” from their startup phase, Zippia wrote.
Former President Donald Trump signed the Economic Growth, Regulatory Relief and Consumer Protection Act into law. It was a rollback of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which added to regulations on financial systems.
Essentially, the Economic Growth, Regulatory Relief and Consumer Protection Act exempted smaller and regional banks from certain regulations, while loosening rules for bigger banks. It also raised the asset threshold for “systematically important financial institutions” to $250 billion when it had previously been $50 billion. After Trump signed the bill, Business Insider noted, SVB, with about $209 billion in assets, was not subject to bigger banks’ tighter regulations.
Some politicians, such as Sen. Bernie Sanders, I-Vt., blamed SVB’s eventual failure on Trump’s rollback of banking regulations, while the former president blasted President Joe Biden on Truth Social for “what is happening to our economy.”
“There needs to be effective and strong regulation, there needs to be strong supervision,” former Democratic Sen. Byron Dorgan said on “NewsNation Live.” “And there needs to be good management. All three of those failed with respect to the Silicon Valley Bank.”
SVB’s assets grew 63% from 2019 until the end of 2020.
SVB’s total bank assets grew over 83% during a time when the COVID-19 pandemic was raging. Its deposits doubled to $102 billion at the end of 2020, the New York Times wrote. In comparison, SVB had $49 billion in 2018.
This rise in assets made sense because of market volatility during COVID-19, and also because individuals and companies got government-backed loans during the pandemic, Forbes wrote. But the rise in assets also begot more risk, especially when it came to interest rates.
According to The New York Times, SVB put a large share of customer deposits into Treasury and mortgage bonds. In bond investing, interest rates are important. When market interest rates rise, prices of fixed-rate bonds fall, according to the U.S. Securities and Exchange Commission.
The Federal Reserve started raising interest rates in an attempt to combat high inflation.
According to NerdWallet, the Federal Reserve raised the rate seven times in 2022, which made credit more expensive for consumers and businesses.
Some have said these higher rates, or at least SVB’s failure to account for them, led to the bank’s collapse.
“It’s always a surprise. We didn’t know what would break, (but) apparently it was this,” Alexander Yokum, an analyst at CFRA Research who covers banking, told VOX. “This would not have happened if the rates hadn’t gone up so quickly and these portfolios hadn’t gone underwater so much.”
With increased interest rates, SVB’s bonds became worth less. SVB could just wait for those bonds to mature, normally, but a slowdown in venture capital and tech made deposit inflows slow, Vox said.
However, Mayra Rodriguez Valladares of Forbes pointed out that depositors, regulators and rating agencies do not run banks.
“To blame SVB’s woes on the Fed is simply absurd. Anyone who does not take interest rate risk sensitivity analysis and stress tests seriously as part of a Gap Analysis does not belong in banking,” Rodriguez Valladares wrote.
Feb. 27, 2023
This is the day that SVB President and CEO Greg Becker sold nearly 12,451 shares for $3.6 million, according to a report from Barron’s. That makes the average price of each stock $287.42.
March 8-9, 2023
SVB announces it sold a bond portfolio at a $1.8 billion loss. In a concerning letter to customers, Becker said SVB needs to reposition its balance sheet and raise almost $2 billion in capital. Customer deposits, he said, had come in lower than forecast in February.
Moody’s Investors Service downgraded the bank’s bond rating, taking it from “stable” to “negative.”
March 9, 2023
Early on March 9, SVB’s stock plunged. It would ultimately plummet by 60%, according to the New York Times. On a conference call, the Times reported, Becker urged venture capital firms to stay calm, even as investors sounded the alarm on social media.
Despite this, SVB’s March 8 announcement caused customer withdrawals, which in turn led to a bank run.
“It was a bank sprint, not a bank run, and social media played a central role in that,” said Michael Imerman, a professor at the Paul Merage School of Business at the University of California-Irvine.
March 10, 2023
The Federal Deposit Insurance Corporation announced it was taking over SVB. This is considered the second-biggest bank failure in U.S. history, after Washington Mutual’s collapse during the 2008 financial crisis, according to the Wall Street Journal.
The FDIC said customers’ insured deposits would be available on Monday, but didn’t say when the uninsured would get their money back. FDIC-insured depositors are protected for up to $250,000. However, many of those who put money into SVB put much more into the bank.
March 12, 2023
State regulators closed New York-based Signature Bank, in what is the third-largest failure in U.S. banking history.
Signature had $110.36 billion in assets and $88.59 billion in deposits at the end of last year, according to New York state’s Department of Financial Services. It was taken over by the FDIC.
All of the depositors of Signature Bank and Silicon Valley Bank will be made whole, and “no losses will be borne by the taxpayer,” the U.S. Treasury Department and other bank regulators said in a joint statement.
March 13, 2023
Moody’s cut its view on the entire U.S. banking system to “negative.”
“We have changed to negative from stable our outlook on the U.S. banking system to reflect the rapid deterioration in the operating environment following deposit runs at Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank (SNY) and the failures of SVB and SNY,” Moody’s said in a statement.
HSBC, a British multinational universal bank and financial services holding company, acquired Silicon Valley Bank UK.
March 14, 2023
The Wall Street Journal reported, per sources familiar with the matter, that the Justice Department and the Securities and Exchange Commission were investigating the collapse of SVB.
March 17, 2023
Silicon Valley Bank’s parent company filed for Chapter 11 bankruptcy protection. It was a widely expected move, as much of the company is now under the control of banking regulators.
The parent company, SVB Financial Group, is no longer affiliated with Silicon Valley Bank, as the bank was taken over by the FDIC. The bank’s successor, Silicon Valley Bridge Bank, is not included in the Chapter 11 filing.
SVB Financial Group believes it has approximately $2.2 billion of liquidity, as well as other valuable securities and assets that are being considered for sale.
March 21-22, 2023
This is when the Federal Reserve will have its next meeting.
Before the SVB collapsed, the Fed had said it intended to raise interest rates again — but now, the wider expectation is that the agency will likely pause or hold off on accelerating its rate hikes.
“At this point in time, depending on reactions in financial markets and eventual fallout on the overall economy, we wouldn’t rule out that the hiking cycle could even be over and that the next move by Fed officials may be lower, not higher,” Kevin Cummins, chief U.S. economist at NatWest, said.
The Associated Press and Reuters contributed to this article.