Silicon Valley Bank SVB what happened for a bank to close in 48 hours?

What is SVB if you never heard of them before?

The bank was founded in 1983, SVB specialised in banking for tech start-ups that includes Crypto Exchanges and provided financing for almost half of United States venture-backed technology and health care companies.

SVB is not very well known if you are not inside the Silicon Valley click. SVB was among the top 20 American commercial banks, with $209 billion in total assets at the end of last year, they are not small as you can see.

Looks like SVB have encountered a classic bank run, people and investors getting there deposits out of the bank. Only if it was this simple.

Let’s look deeper and see all the different forces that took down the bank.

The Federal Reserve, for one, began hiking interest rates a year ago to combat inflation. You would have notice if your mortgage rate gone up. The Fed acted quickly, and increasing borrowing costs disrupted the momentum of tech stocks, which had benefitted SVB.

Rising interest rates also damaged the value of long-term bonds purchased by SVB and other banks during the ultra-low, near-zero interest rate era. The average yield on SVB's $21 billion bond portfolio was 1.79%; the current 10-year Treasury yield is around 3.9%.

At the same time, venture finance began to dry up, requiring firms to rely on SVB funds. So, the bank was sitting on a mound of unrealised bond losses at the same time that customer withdrawals were increasing.

SVB stated on Wednesday the 8th of March 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. This apparently caused fear among prominent venture capital firms, who advised companies to remove their funds from the bank.

Trading in SVB stock stopped on Friday morning as its shares began to fall a day earlier and many investors feared a return of the 2008 financial crisis.

The company had abandoned efforts to immediately raise funds or find a buyer. California officials stepped in, closing down the bank and placing it under the supervision of the Federal Deposit Insurance Corporation.

Despite the initial alarm on Wall Street, many believe SVB's failure is unlikely to cause the domino effect that gripped the banking sector during the financial crisis. "The system is as well funded and liquid as it used to be," said Mark Zandi, chief economist at Moody's. "The troubled banks are too tiny to pose a substantial threat to the overall system."

According to the FDIC, all insured depositors will have full access to their protected deposits by Monday morning. It will pay an "early next week dividend" to uninsured depositors. So, the US Government and Fed will help depositors.

According to some experts in the media that any larger contagion is unlikely, smaller banks that are disproportionately exposed to cash-strapped industries like tech and crypto may be in for a tough ride.

As of writing this on Monday morning Bitcoin have increased in value over 14%, looks like Bitcoin is the Gold standard as we expected and hoped for.

The financial experts in the media is also saying that everyone on Wall Street knew the Fed's rate-hiking programme would eventually break something, and right now that something is tiny banks.

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

A buyer could still emerge for SVB in the US, though it’s far from guaranteed. Just this morning in the UK, HSBC bank have purchased the SVB part in the UK for only £1.

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