T H E S I L I C O N VA L L E Y B A N K

COLLAPSE
A N A N A LY S I S
CONTENTS
INTRO

BEFORE THE FALL

THE FALL

ANALYSIS OF THE FALL

CONCLUSION

ANNEXURE
 • SVB was founded in 1983 in Santa Clara,
INTRO California. SVB was a leading bank for startups
and entrepreneurs in Silicon Valley and beyond.

• SVB was the sixteenth largest bank in the

United States.

• SVB was influential among startups in India,

being unusually willing to serve C corporations
whose founders lacked Social Security numbers.

• In February 2023, Forbes listed the bank as #20

of "America's Best Banks" with a 13.8% return

SVB COLLAPSE
on equity.

• On March 10 2023, SVB collapsed, having a

classic case of bank run and marking it as the
second largest bank failure in U.S. history.

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 B E F O R E T H E FA L L
Year 2022 2021 2020 2019 2022/2019
Balance Sheet Items
Total Assets
$209,026,000 $208,581,000 $113,839,098 $69,942,929 299%

Cash and Balances due from Dis $12,511,000 $13,125,000 $16,969,801 $6,178,789 202%

Securities $117,297,000 $125,288,000 $47,435,138 $27,752,756 423%

Net Loans and Leases $73,613,000 $65,852,000 $44,733,041 $32,844,500 224%

Total Liabilities $193,570,000 $193,786,000 $106,770,134 $64,908,834 298%

Total Deposits $175,378,000 $191,431,000 $103,194,107 $62,943,752 279%

Total Equity Capital $15,456,000 $14,795,000 $7,068,964 $5,034,095 307%

Income Statement Items
Total revenue $6,948,000 $4,084,000 $2,870,785 $2,967,112 234%
Total Interest Income $5,681,000 $3,288,000 $2,239,556 $2,305,949 246%
Total Interest Expense $1,097,000 $62,000 $63,337 $181,263 605%
Net Interest Income $4,584,000 $3,226,000 $2,176,219 $2,124,686 216%
Total Noninterest Income $1,267,000 $796,000 $631,229 $661,163 192%
Total Noninterest Expense $2,729,000 $2,213,000 $1,560,022 $1,266,253 216%

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Net Income $2,024,000 $1,294,000 $826,243 $1,036,618 195%
• One glance at the table and we can see that the bank experienced a
notable rise in its total assets, liabilities, equity, and overall revenue. The
bank's total assets grew three-fold from $70 billion in 2019 to $209 billion in
2022.
• The bank's net loans and leases also doubled from $33 billion in 2019 to
$74 billion in 2022.
• In contrast, securities soared more than four-fold from $28 billion to $117
billion.
• The Table also reveals that the bank's total revenue increased from $3 billion
in 2019 to $7 billion in 2022, with all main income statement items growing
at a similar rate except for total interest expense, which was highly volatile

SVB COLLAPSE
during this period. It decreased three-fold in 2020 and 2021, but then
increased significantly by over 15 times from 2021 to 2022.
 SELECTED ITEMS FROM SVB FINANCIAL STATEMENT (in thousands)
Year 2022 2021 2020 2019 2022/2019 2021/2019
Held to Maturity (Book Value) $91,327,000 $98,201,000 $16,592,544 $13,842,946 660% 709%
Available for Sale (Fair Market Value) $25,976,000 $27,093,000 $30,832,033 $13,909,810 187% 195%
Total Debt Securities $117,303,000 $125,294,000 $47,424,577 $27,752,756 423% 451%
Amount of Deposit accounts < $250,000 $4,778,000 $4,416,000 $2,415,957 $2,191,944 218% 201%
Number of Deposit Accounts < $250,000 106,420 95,238 56,087 52,166 204% 183%
Amount of Deposit Accounts > $250,000 $156,747,000 $170,898,000 $92,352,297 $54,953,157 285% 311%
Number of Deposit Account > $250,000 37,466 34,727 23,331 18,785 199% 185%
Estimated Insured Deposits $9,990,000 $9,361,000 $6,206,736 $6,041,321 165% 155%
THE TABLE REVEALS THAT

• At the end of 2021, the bank had:

• 95,238 deposit accounts valued at ≤ $250,000. (2.307%)
• 34,727 deposit accounts valued > $250,000. (89.27%)
• At the end of 2022, the bank had:

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• 106,420 deposit accounts valued at ≤ $250,000. (2.724%)
• 37,466 deposit accounts valued > $250,000. (89.38%)
These tables some key facts about the SVB which are that SVB made significant investments in debt
security in 2021 when the interest rates were low but they became expensive in 2022 when the
interest rates rose. Another important thing which we can see is that SVB had a highly concentrated
depositor base, primarily consisting of a small group of venture capitalists. This concentration of
depositors poses a significant risk of bank run.

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T H E FA L L MAR
Silicon Valley Bank announced a
$1.8 billion loss on the sale of
8 securities, including the Treasury
and mortgage bonds

MAR Shares of Silicon Valley Bank fell

9 60%

The rapid withdrawal of funds

MAR gained momentum, putting Silicon
10 Valley Bank on the verge of
collapse

The FDIC declared it would protect

MAR all of their funds, including those
12

SVB COLLAPSE
that exceed the $250,000 limit.

The Justice Department and the

Securities and Exchange
MAR Commission are probing the fall of
14 Silicon Valley Bank, The Wall Street
Journal reported.

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This collapse was the Second largest bank failure in the U.S. history and came at a time
of great distress as U.S. economy and world economy at large is seemingly heading
into the recession. Though this collapse of the SVB may seem sudden on the surface as
SVB was ranked 20th best American bank by the ‘Forbes’ just weeks prior. If One sees
and tries to look deep into this collapse he can see why the seemingly “20th BEST
American Bank” was in reality showing cracks and it was only a matter of time when this
would have happened.
Following are some of the reasons which led to the fall of the behemoth

• SVB experienced a run on the bank.

SVB COLLAPSE
• Selling bonds at a loss cause of cash crunch.
• Increase in interest rate by Federal reserve.
• Moody’s warning of reducing SVB Credit Rating.
• Banks lack of depositors diversification.

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RUN ON THE BANK

At its core the collapse of SVB was due to the

run on the bank, the people simply
demanded too much money too fast and SVB
like most banks didn’t have enough cash in
hand.
One thing to keep in mind is that SVB catered
to startups and IT companies and they can be
very interconnected. And their withdrawals
are huge.

SVB COLLAPSE
Essentially the bank was Illiquid not insolvent.
So the SVB had to sell of its long term assets
like bonds. And what started as a illiquidity
became a insolvency problem.

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 S E L L I N G B O N D S AT LO S S

Since the depositors in the SVB exited en masse, the

SVB had to get the cash and since we established
that SVB didn’t have enough cash in hand to cover
this exit. One other thing to also pay attention is that
SVB had massively invested in the uninsured Long-
Term deposits during the COVID-19 Pandemic. They
had to sell their massive long term bonds at a loss.

SVB COLLAPSE
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I N C R E A S E D I N T E R E S T R AT E B Y F E D E R A L R E S E RV E

The SVB main depositors were start-ups who rarely needed

loans from SVB and hence the SVB had to invest this
deposit in order to earn profits.

SVB did so by investing in bonds but the strategy backfired

when interest rates started rising. They had expected
gradual rate hikes from the Federal Reserve, but the hikes
happened much faster than anticipated. This caused the
value of SVB's low-yield bonds, purchased with customer
deposits, to decrease significantly. As the market offered

SVB COLLAPSE
bonds with higher yields, SVB's portfolio of bonds yielding
1.5% became unattractive. Consequently, SVB experienced
a decline in bond value and a reduction in the deposits
used to acquire them.

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In addition, Moody's issued a warning of a
possible downgrade to SVB’s credit rating, which
could have caused investors and depositors to
lose confidence in the bank. To avoid this, SVB
decided to sell $21 billion of its bond portfolio at
a loss of $1.8 billion to raise money. The bank also
planned to raise more money by selling shares,
but this announcement created a panic and led to
a run on the bank, ultimately contributing to its
collapse

SVB COLLAPSE
LACK OF DEPOSITORS DIVERSIFICATION

SVB had a highly concentrated depositor base, primarily

consisting of a small group of venture capitalists. As
evidenced while looking at the financial statements of the
SVB. By the end of 2022 deposit accounts valued >
$250,000 held 89.38% of the total deposits. The high
concentration of depositors presents a considerable risk
of a bank run, especially when the bank's performance has
deteriorated, as these depositors are likely
interconnected. Had SVB had a more diverse depositors
group then they might have not gotten themselves into
the cash crunch.

SVB COLLAPSE
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 CONCLUSION
The collapse of the SVB again proves that there is no such thing as “Too Big To
Fail”. Financial world is a rapidly changing world where even a single mistake
can lead to your doom.
In this case especially there were so many factors which just went wrong and set
off a domino effect. First the lack of diversified portfolio by the SVB , then
Federal Reserve raising the interest rates exponentially which not only made SVB
bonds value to fall drastically in open market but also compelled its depositors
to withdraw. Which in turn lead SVB to sell their bonds at a loss , which made
more depositors worry which then led to an even more withdrawals. Frankly in

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the case of SVB “Everything That Could Go Wrong Went Wrong”.
ANNEXURE

• V O, L A I V A N A N D L E , H U O N G T. T. , F R O M H E R O T O
ZERO - THE CASE OF SILICON VALLEY BANK (MARCH
19, 2023). HTTPS://SSRN.COM/ABSTRACT=4394553

• FDIC. H T T P S : / / W W W. F D I C . G O V /

• H I N H T. D I N H , 2 0 2 3 . "LESSONS FROM THE SILICON VALLEY BANK

C R I S I S ,“

• WIKIPEDIA.
H T T P S : / / E N .W I K I P E D I A . O R G / W I K I / C O L L A P S E _ O F _ S I L I C O N _ VA L L E Y _ B A N K
T H A N K YO U
Abhivansh Agarwal

SVB COLLAPSE
abhivanshagarwal01@gmail.com

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