Silicon Valley Bank's collapse, explained: what a bank run looks like when it happens over an app instead of in line.

Banks make money partly by taking in deposits and investing a portion of them in interest-bearing assets, and Silicon Valley Bank had put a large share of its deposits, swelled by a boom in tech and venture capital funding during the pandemic era, into long-term US government and mortgage Bond. Those bonds were safe in the sense that the US government wasn't going to default on them, but they carried a different risk: when interest rates rise, the market price of existing bonds with lower, older interest rates falls, since new bonds now offer better returns. As the Federal Reserve raised interest rates rapidly through 2022 to fight inflation, the market value of SVB's bond holdings dropped significantly, creating large unrealized losses sitting quietly on its balance sheet.

Those losses only become a real problem if a bank is forced to actually sell the bonds before they mature, and that's exactly what triggered SVB's collapse. In early March 2023, SVB announced it needed to raise new capital after selling some of its bond holdings at a loss to cover deposit withdrawals, and that announcement alone was enough to spook its depositor base, which was unusually concentrated among tech startups and venture capital firms that talk to each other constantly and often hold balances far above the standard $250,000 FDIC insurance limit. Word spread almost instantly through group chats, social media, and startup networks, and depositors began pulling their money out through mobile banking apps at a pace no bank could withstand, roughly $42 billion in a single day.

This was, in essence, a classic bank run, the same underlying dynamic as the lines of anxious depositors seen outside banks in past crises, just executed at internet speed through a phone screen instead of in person. Regulators closed the bank within 48 hours, an extraordinarily fast failure for an institution of its size. To prevent the panic from spreading to other regional banks with similar depositor profiles, US regulators took the unusual step of invoking a systemic risk exception, guaranteeing all of SVB's deposits in full, even balances well above the normal $250,000 insured limit. A smaller bank, Signature Bank, failed just days later amid the same wave of anxiety. The episode is now a standard reference point for how quickly a bank run can unfold when depositors can move money instantly from their phones, far faster than the days it might have taken in earlier eras.

Key takeaways

• •SVB invested heavily in long-term bonds when rates were low, and rapid Fed rate hikes through 2022 sharply reduced the market value of those bonds.
• •An announcement that SVB needed to raise capital after selling bonds at a loss triggered a panic among its depositors.
• •SVB's depositor base was unusually concentrated in tech startups holding balances above the standard $250,000 FDIC insurance limit.
• •Roughly $42 billion was withdrawn in a single day, largely via mobile banking apps, making this one of the fastest bank runs in history.
• •Regulators closed SVB within 48 hours and guaranteed all deposits, including uninsured ones, to prevent the panic from spreading further.