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SVB collapse 2023: the bank run that took one day
On 9 March 2023, customers tried to pull about $42 billion out of Silicon Valley Bank. The next morning, regulators shut it down. What broke it wasn't risky loans. It was safe government bonds.
Who they were
Silicon Valley Bank (SVB) was the bank of the tech world. Start-ups and the investors who fund them kept their cash there.
In 2020 and 2021, tech companies raised huge amounts of money. Much of it landed at SVB. Its deposits grew very fast.
By the end, SVB had about $209 billion in assets. It was the 16th-largest bank in the US.
Where the money went
A bank doesn't keep your deposit in a drawer. It lends it out or invests it.
SVB put a big share into long-term US government bonds and similar bonds. These are some of the safest loans in the world. The US government is very unlikely to miss a payment.
But "safe from default" isn't the same as "safe from price changes". SVB bought many of these bonds when interest rates were near zero. Some paid less than 2% a year.
What happened
Rates jump
In 2022, the Federal Reserve raised interest rates fast to fight inflation. Our 2022 bond crash story tells that part.
When rates rise, older bonds that pay less become worth less. Nobody wants a bond paying 1.8% when new ones pay 4%. So the price of SVB's bonds fell.
On paper, SVB was sitting on large losses. As long as it never had to sell, those losses could stay hidden in the accounts.
The announcement
At the same time, start-ups were spending cash and raising less. Deposits started to shrink.
On 8 March 2023, SVB said it had sold about $21 billion of bonds at an after-tax loss of about $1.8 billion. It also said it wanted to raise about $2.25 billion by selling new shares.
To SVB, it was a fix. To its customers, it sounded like trouble.
The run
On 9 March, word spread fast through group chats, social media and investor networks. Many big customers had far more than the $250,000 that deposit insurance covers. They had every reason to move first.
Customers tried to withdraw about $42 billion in a single day. SVB's share price fell about 60%.
The moment everyone remembers
On the morning of 10 March 2023, California regulators closed SVB and handed it to the FDIC.
It was the biggest US bank failure since 2008, and the second-biggest ever, measured in dollars.
Two days later, on 12 March, New York regulators closed Signature Bank too. The same evening, the government said all deposits at both banks would be protected, even above $250,000. The Fed also opened a new lending program so other banks could borrow against their bonds without selling them at a loss.
Stress spread for weeks. In Europe, Credit Suisse was taken over by UBS on 19 March. In the US, First Republic Bank failed and was sold to JPMorgan on 1 May.
What it teaches
1. "Safe" can still lose value
SVB's bonds were very unlikely to default. But their prices still fell a lot when rates rose. Risk isn't only "will I get paid?" It's also "what is this worth if I have to sell today?" Read how interest rates affect stocks and the bond yield page.
2. A loss on paper is still a loss
SVB's losses were real before it sold. Selling just made everyone see them. The same is true of an open trade that's moved against you. Not closing it doesn't make the loss go away.
Look at any open trade that's below your entry. Ask: "If I didn't own this, would I buy it here, with this stop?" If not, you're holding it to avoid a feeling, not for a reason.
3. When everyone can leave at once, speed matters
A phone app made it possible to pull money in minutes. When many customers share the same worries and the same chats, they move together. Markets work the same way. Fast moves often come from many people acting on the same fear.
4. Don't put everything in one place
SVB's customers were mostly one kind of business, and its assets were mostly one kind of bet. Spread risk out where you can. See diversification and our risk management guide.
What it doesn't mean
- It doesn't mean your bank is about to fail. Most banks have a wider mix of customers and assets. US deposits up to the insured limit are protected by the FDIC.
- It doesn't mean bonds are bad. It means long-term bonds swing in price when rates move, and you should know that before you hold them.
- It doesn't mean the run was irrational. For customers with millions above the insured limit, moving first was a sensible choice. That's what made it so fast.
- It doesn't mean it was easy to see coming. Some analysts flagged the bond losses. Most people didn't connect them to a run until it happened.
Timeline
| Date | Event |
|---|---|
| 2020–2021 | Deposits pour into SVB; it buys long-term bonds at low rates |
| 2022 | Fed raises rates fast; SVB's bonds fall in value |
| 8 Mar 2023 | SVB reports a $1.8 billion after-tax loss on bond sales; plans to raise $2.25 billion |
| 9 Mar 2023 | Customers try to withdraw about $42 billion; shares fall about 60% |
| 10 Mar 2023 | Regulators close SVB; FDIC takes over |
| 12 Mar 2023 | Signature Bank closed; all deposits at both banks protected; new Fed lending program |
| 19 Mar 2023 | UBS agrees to take over Credit Suisse |
| 1 May 2023 | First Republic Bank fails; sold to JPMorgan |
Questions
Why did Silicon Valley Bank fail?
It invested heavily in long-term bonds when rates were low. When rates rose, those bonds lost value. After SVB announced a loss and a plan to raise money, customers pulled about $42 billion in one day, and regulators closed it.
Did SVB customers lose their money?
No. On 12 March 2023, the government said all deposits at SVB and Signature Bank would be protected, including amounts above the usual $250,000 insurance limit. Shareholders were not protected.
Was SVB the biggest bank failure ever?
It was the second-biggest US bank failure measured in dollars, and the biggest since the 2008 financial crisis.
How do rising interest rates hurt bonds?
An older bond pays a fixed rate. When new bonds pay more, the older one is worth less, so its price falls. The longer the bond has left to run, the bigger the drop tends to be.
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