In March 2023, Silicon Valley Bank (SVB) collapsed almost overnight, shocking the financial world and rattling millions of Americans who suddenly wondered: Could my bank fail too?
SVB wasn’t a small or obscure institution. At the time, it was one of the 20 largest banks in the United States and a major financial hub for tech startups and venture capital firms. Just a year earlier, it was being praised for its growth and success.
So how did a bank that looked strong on paper unravel so quickly? The short answer: rising interest rates, risky decisions, too many uninsured deposits, and a sudden loss of confidence. Let’s break it down in plain English.
What Was Silicon Valley Bank?
Silicon Valley Bank was a California-based bank that specialized in serving:
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Tech startups
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Biotechnology and life sciences companies
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Venture capital firms
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Startup founders and executives
Unlike most consumer banks, SVB didn’t rely on everyday checking and savings accounts from families. Instead, its customers were mostly businesses holding very large balances, often millions of dollars at a time.
That business model worked well during years of low interest rates and booming tech investment—but it also made the bank vulnerable when conditions changed.
How Silicon Valley Bank Grew So Fast
SVB was founded in the early 1980s to serve Silicon Valley startups that traditional banks didn’t want to touch. Over time, it became deeply embedded in the tech ecosystem.
Between 2019 and 2021, SVB grew at an extraordinary pace. Why?
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Interest rates were near zero
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Tech companies raised huge amounts of venture capital
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Startups parked their cash at SVB
As deposits poured in, the bank’s total assets more than tripled in just a few years. By the end of 2021, SVB looked like a major success story.
But fast growth can hide problems—and that’s exactly what happened.
The Core Problem: Rising Interest Rates
In 2022, the Federal Reserve began aggressively raising interest rates to fight inflation. That decision changed everything for Silicon Valley Bank.
Here’s why.
SVB’s Investment Strategy Backfired
Like all banks, SVB invested customer deposits to earn money. A large portion of its cash went into:
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Long-term government bonds
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Mortgage-backed securities
These investments were made when interest rates were very low. When rates went up, the value of those bonds fell sharply.
On paper, SVB suddenly had massive unrealized losses.
As long as customers kept their money in the bank, those losses stayed mostly hidden. But if the bank needed to sell those bonds, the losses would become real.
Unfortunately, that’s exactly what happened.
Too Many Uninsured Deposits
Another major weakness: most of SVB’s deposits were uninsured.
The FDIC normally insures deposits up to $250,000 per person, per bank. At SVB:
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Over 90% of deposits exceeded that limit
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Many customers had millions tied up in one bank
That meant if SVB failed, most customers stood to lose a lot of money. When fears started spreading, those customers had a strong incentive to pull their cash immediately.
The Bank Run That Ended It All
In early March 2023, SVB announced it had sold a large portion of its bond portfolio at a loss and needed to raise new capital. That news spooked investors and customers.
Word spread fast—especially on social media and group chats among venture capital firms.
What happened next was historic:
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On March 9, 2023, customers tried to withdraw $42 billion in a single day
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Regulators feared withdrawals could exceed $100 billion within hours
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SVB didn’t have enough liquid cash to meet demand
The very next day, state regulators shut the bank down and handed control to the FDIC.
SVB was officially insolvent.
Why Regulators Didn’t Catch the Problem Sooner
After the 2008 financial crisis, banks over a certain size were required to undergo strict stress tests. But in 2018, Congress raised the threshold for those tests.
SVB’s assets—around $212 billion—fell just below the new cutoff. As a result:
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It faced lighter regulatory scrutiny
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Risks tied to interest rates and deposit concentration weren’t addressed quickly
Later investigations concluded that both bank management and regulators failed to act decisively as warning signs emerged.
What Happened to Customers’ Money?
This is the part that matters most to everyday Americans.
Normally, FDIC insurance only covers up to $250,000 per depositor. But SVB posed a unique risk to the broader financial system.
To prevent panic and contagion, federal regulators made a rare move:
They guaranteed all deposits—insured and uninsured.
That meant:
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Businesses got access to their full funds
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Payrolls were met
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The broader banking system stayed stable
Importantly, investors and shareholders were not protected. SVB stock became essentially worthless, and equity holders were wiped out.
Who Paid for the Rescue?
U.S. taxpayers did not directly pay for SVB’s collapse.
Instead, the cost came from the Deposit Insurance Fund, which is funded by fees paid by banks—not consumers. The failure cost the fund an estimated $16 billion.
The Ripple Effects Across Banking
SVB’s collapse shook confidence in regional and mid-sized banks nationwide.
As a result:
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Customers moved money to large banks like JPMorgan and Wells Fargo
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Regional bank stocks dropped sharply
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Banks had to offer higher interest rates to keep deposits
To stabilize the system, the Federal Reserve launched a new emergency lending program that allows banks to borrow against high-quality assets during periods of stress.
Other Banks That Failed Soon After
SVB wasn’t alone.
In the weeks that followed:
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Signature Bank collapsed in March 2023
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First Republic Bank failed in May 2023
All three shared similar problems: rapid growth, heavy reliance on uninsured deposits, and vulnerability to rising interest rates.
What This Means for Everyday Savers
For most people, the key takeaway is reassuring:
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Bank failures are rare
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FDIC insurance remains strong
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Your money is protected up to $250,000 per bank
If you keep more than that in cash, spreading funds across multiple banks or account types can add extra protection.
The Bottom Line
Silicon Valley Bank didn’t fail because of fraud or reckless lending. It failed because:
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It grew too fast
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It mismanaged interest-rate risk
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It relied heavily on uninsured deposits
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Confidence vanished almost instantly
The collapse showed how quickly a modern bank can unravel—and why safeguards like FDIC insurance and strong oversight matter.
For everyday Americans, the lesson is simple: understand where your money is, how it’s protected, and never assume a big bank can’t fail.
