In March 2023, the 16th largest bank in the United States - Silicon Valley Bank (SVB) - was shut down by the California Department of Financial Protection and Innovation. The Federal Deposit Insurance Corporation (FDIC) estimated that the cost of the collapse of SVB to its Deposit Insurance Fund would be about $20 billion on March 26. The collapse represents the largest bank failure since the financial crisis of 2008.

Between 2019 and 2022, Silicon Valley Bank had a significant amount of deposits and assets. Instead of holding those deposits in cash, most of the excess was used to invest in long-dated fixed income securities such as US government bonds.

When inflation was increasing, the US Federal Reserve and other central banks around the world had to raise interest rates to tame inflation. Since bond prices will fall when the rates rise, Silicon Valley Bank's bonds became riskier investments.

As economic conditions soured over the last year, many of the bank's customers started withdrawing their deposits. Since SVB didn't have enough cash on hand, it started selling some of its bonds. But those sales came at a loss of about $1.8 billion. It took just 48 hours to collapse the SVB.

Many regulators may have concerns about wider financial chaos following SVB from collapsing. On the other hand, most analysts point out that US and European banks have much stronger financial buffers now than during the global financial crisis.

REFERENCES

• https://www.investopedia.com/what-happened-to-silicon-valley-bank-7368676
• https://edition.cnn.com/2023/03/13/investing/silicon-valley-bank-collapse-explained/index.html
• https://www.economicsobservatory.com/why-did-silicon-valley-bank-fail
• https://www.theguardian.com/business/2023/mar/13/silicon-valley-bank-why-did-it-collapse-and-is-this-the-start-of-a-banking-crisis
• https://www.theguardian.com/business/2023/mar/17/why-silicon-valley-bank-collapsed-svb-fail

VOCABULARY

• inflation (a continuous increase in the level or amount of something)
• bond (an official paper given by the government or a company to show that you have lent them money that they will pay back to you at a particular interest rate)
• regulator (a person or organization whose job is to control an activity or process and make certain that it operates as it should)
• buffer (something or someone that helps protect from harm)