The collapse of Silicon Valley Bank, explained visually

When Silicon Valley Bank, collapsed on Friday, it created the second-largest bank failure in US history.

Here’s how it all came tumbling down:

As the bank grew to be the 16th largest in America, SVB invested most of their funds in long-term bonds when rates were near zero.

This may have seemed like a good idea at the time, but when interest rates rose those long term bond prices fell, cratering their investments.

On Wednesday, SVB announced that it suffered a $1.8 billion after-tax loss and urgently needed to raise more capital to address depositor concerns.

The market reacted sharply and SVB lost over $160 billion dollars in value in 24 hours. 

As the stock fell, depositors moved quickly to withdraw money from the bank. 

Banks only carry a fraction of depositors’ money in cash – called a fractional reserve. This meant that SVB couldn’t give depositors their money because it was held in these long-term bond investments that were no longer worth as much.

In short, SVB didn’t have the cash they needed to fulfill their obligations to their customers. As panicked withdrawal continued, a bank run was well-underway.

So the Federal Deposit Insurance Corporation took over SVB on Friday to get depositors access to their money by Monday, and because the bank’s troubles posed a systemic risk to the financial system.

That’s the sort of action that the ‘FDIC Insured’ sign that you may have seen in your local bank represents.

It wasn’t just depositors who were distancing their assets from the bank.

Bloomberg reports that SVB CEO Greg Becker sold $3.6 million of company stock less than two weeks before the firm disclosed the extensive losses that led to its demise and that Peter Theil’s Founder’s Fund withdrew millions by Thursday morning.