Lessons To Learn From The Silicon Valley Bank Collapse

It’s the biggest bank failure since the 2008 financial crisis and experts everywhere are wondering what the fallout will be after Silicon Valley Bank’s spectacular collapse.

Let’s take a brief journey of the institution’s past, present, and uncertain future.

A 40-year mission

Co-founders Bill Biggerstaff and Robert Medearis came up with the idea for SVB while playing a poker game and opened their first office in 1983. The goal was to provide financial services to venture-backed startup companies — and it has stuck to that model ever since.

Promising upstarts and established companies alike were among its customers.

What went wrong

Early indicators suggest that some unwise investments led to huge losses for SVB. The issue was clearly exacerbated by rising interest rates that the Federal Reserve has implemented in its continued effort to ease inflation.

At the first sign of trouble, investors and customers alike started to pull out their money. This intensified throughout the day Thursday, prompting a bank run that ultimately led to its demise.

Where do we go from here?

In the wake of the 2008 crisis, new regulations were put on banks that included so-called stress tests to ensure that they remain solvent. While this will hopefully help us escape a similar economic meltdown, the SVB collapse proves that even major institutions can fail.

The CEO’s decision to sell millions of dollars in stock just days earlier adds another wrinkle to the story.

Although the FDIC will help recover some of the losses and the UK government is working to help some investors in that country, many people and businesses are left in the lurch.

As in the Great Recession — and the Great Depression that came decades earlier — we’re all re-learning the tough lesson that your money isn’t always safe just because it’s in a bank.

Chris Agee March 13th, 2023

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