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5 things to know about the Silicon Valley Bank failure

As the Silicon Valley Bank collapse evolves, we’ve compiled a guide on what’s happening and who's impacted.

The Silicon Valley Bank logo is seen through a rain covered window in front of the SVB headquarters on March 10, 2023, in Santa Clara, California.
The Silicon Valley Bank logo is seen through a rain covered window in front of the SVB headquarters on March 10, 2023, in Santa Clara, California.Read moreJustin Sullivan / MCT

Jessie Garcia, who runs a Philly tech startup, said she had her head down, in the weeds working, when she began hearing murmurs that her company’s bank was in trouble. Garcia is the CEO and founder of Tozuda, which operates out of Grays Ferry and is focused on head injuries. Concerned about the company’s future and her employees’ salaries, the team broke out a bottle of scotch until they found out more. Across the country, other startups are also in distress.

Financial regulators announced Friday that they were taking over control of Silicon Valley Bank, marking the second-largest bank failure in U.S. history. Clients of SVB reported being unable to access their money or process checks or payments. The trickle-down effect was felt across the country, with some companies freezing payouts and an unavoidable stream of chatter about the news.

For Garcia, SVB’s collapse signaled the potential loss of millions of dollars and sleepless nights. While the FDIC has stepped in to help customers recover funds, the CEO says her trust in the financial industry is shaky at best.

Here’s a quick guide to what’s happening.

1. What is Silicon Valley Bank and what happened to it?

The bank was founded in 1983 in California and quickly became popular among the tech and startup community. It was the country’s 16th-largest lender. SVB said it provided banking for nearly half of the country’s startups as of 2021, as well as many of the venture capital firms that funded those startups. For a long time, the bank’s status mirrored how well or poorly the tech industry was doing, Vox noted.

When things were peachy — which they had been for years — venture capitalists gave a lot of money to a lot of startups. But trouble began appearing this month. And things went downhill fast.

As banks typically do, SVB would take client deposits and invest them in bonds. But the Federal Reserve’s higher interest rates caused those bonds’ values to fall. That’s typically not a problem — the bank just waits for the bonds to mature.

But coupled with a downshift in venture capital and tech, the rate of deposits coming in decreased while the rate of clients withdrawing money increased. By last Wednesday, SVB Financial Group announced share sales in an effort to get on stable footing. Instead, the news spooked clients, who flocked to pull out $42 billion from the bank Thursday out of fear of a collapse. The following day, the bank was shut down, and the federal government took over.

2. Who is impacted by the Silicon Valley Bank collapse?

The bank’s closure is a big deal in the financial sector.

SVB had a clientele base heavily in technology and startups. Companies like Roku and Etsy had SVB accounts, leaving them vulnerable, along with local businesses. That trickle-down effect is wide, with Etsy sellers reportedly unable to receive sales payouts from the platform since last week.

In Philadelphia, at least five biopharmaceutical and medical device companies have a connection to Silicon Valley Bank, according to the Philadelphia Business Journal, though the exact impact on those companies is unclear.

3. What are people saying about the collapse?

On TikTok, Etsy sellers have been posting about how the pause on deposits is impacting their lives. A popular user from Alaska, @beingmisty, told her 685,400 followers about not being able to get paid for hundreds of already-made sales in homemade balms and tinctures, totaling to “a couple thousand dollars.”

Real estate agents — including Philadelphia-based Daniel Baer — are taking to TikTok to discuss how the SVB collapse has prompted mortgage rates to come down.

On Twitter and Instagram, some content creators are attempting to make light of the situation, crafting memes that poke fun at the events.

4. What happens next?

A few things:

  1. On Tuesday, multiple news outlets reported that the Department of Justice and the Securities and Exchange Commission are planning to investigate the collapse.

  2. The FDIC allowed depositors to access up to $250,000 of their funds Monday — the maximum amount the FDIC insures. It also says that all customers will get their money back in full, but haven’t offered specifics.

  3. President Joe Biden said SVB would face consequences, including the firing of bank management. He added that bank investors won’t be protected because they knowingly took a risk.

  4. Biden also said that the money being recouped will not require a taxpayer-funded bailout. Instead, the FDIC said, it will come from insurance premiums paid by banks and interest earned from the government.

  5. The FDIC could either sell off SVB entirely to another bank or sell its assets to raise money for repayments.

5. What else should I read on this?

Here’s more coverage:

  1. What killed Silicon Valley Bank, and who will cover its losses?

  2. Government races to reassure U.S. that banking system is safe

  3. Silicon Valley Bank is seized by U.S. after historic failure

  4. Bank panic: Is the Silicon Valley collapse unique or a sign of more to come?