How Silicon Valley's Bank Imploded

Two days after a surreal bank run amplified by social media began, founders' favorite bank has been shut down by the FDIC.

A previously well-respected and historically rather boring bank with such deep ties to the tech and venture world that it literally named itself “Silicon Valley Bank” has suddenly and dramatically shut down, a startling conclusion to one of the most fast-moving, internet-fueled bank runs of the 21st century. Now, questions are arising about whether this is merely a one-off catastrophe or a sign of greater economic issues yet to be unearthed. No one, it seems, has the answers. 


There had been murmurs that something might be amiss at Silicon Valley

Bank for a little while, but the roller coaster really started on Wednesday. That day, the company announced a series of decisions: It had sold $21 billion of investments (basically everything it could) at a $1.8 billion loss after taxes, it was borrowing $15 billion, and it planned an emergency stock sale to raise another $2.25 billion. At issue was—what else?—inflation, which had sunk the value of long-term bonds and mortgage-backed securities the bank had purchased during the rollicking easy money era. Now, startups were less flush and started to pull more money out of their accounts, which meant the bank needed more liquidity, i.e. real money, to hand out.

Have information about Silicon Valley Bank? We want to hear from you. From a non-work device, contact our reporter at or via Signal at 310-614-3752 for extra security.

Banks, of course, don’t keep all the money deposited with them in a Scrooge McDuck-style money vault. If for whatever reason an unusual number of depositors want to withdraw their money, that’s a problem in its own right even if the bank is sound and has done nothing wrong, because it doesn’t have the money on hand to give them.

When rumors of this happening started, panic set in, and set in quickly it did, wiping $10 billion off the value of the bank on Thursday and leading startups and organizations of all types to start to pull their money. Hoping to calm the situation, the bank’s CEO, Greg Becker, hopped on a call on Thursday and basically pleaded with venture capitalists to “stay calm” and “support us just like we supported you during the challenging times.” The bank, the argument went, had figured out the liquidity issue and was on solid ground. 


That is, with one theoretical exception, Becker said: “If everyone is telling each other SVB is in trouble, that would be a challenge.”

Unfortunately for Becker, everyone started telling each other SVB is in trouble. The classic problem of a bank run being self-perpetuating was probably compounded, maybe hilariously, by the speed with which information moves on the internet, which Silicon Valley Bank played no small role in developing into what it is today. “The SVB thing is exacerbated by the fact that such a huge chunk of their users are on Twitter all day,” wrote the venture capitalist Jay Ganatra. “Amplifies the panic in a way that hasn’t really happened historically, and would be unlikely to happen if they served a less thinkboi segment.” Another person put it more simply: “promoting a bank run for retweets is wild.” Nevertheless, the memes persisted, as did the WhatsApp groups and Signal groups and text messages, all of which added up to a sense that calm was not an option.

Worried that the bank could go belly up, top venture funds like Union Square Ventures and Peter Thiel’s Founders Fund explicitly told their respective entrepreneurs to pull their money out of Silicon Valley Bank, or at least get their accounts below $250,000, at which point the entirety of their balance would be FDIC-insured. “SVB is in a severe cash crisis,” Union Square Ventures reportedly told its portfolio companies in an email. “Do NOT accept any offers from SVB to keep your money there even if they dangle 5% interest rates in front of you.” The entrepreneurs listened. Said one startup CEO on Twitter: “Every company I know is scrambling to get their cash balances under 250k and the rest of cash off-platform or into big bank funds ASAP.” (Hilariously, some appeared to suggest people deposit their money in fintech startups they are invested in—gotta always be looking to make a buck!)


By Thursday evening, after the bank’s share price had dropped a stunning 60 percent in one day, one venture capitalist predicted to me that there was a “50-50 chance” the bank went bust. By Friday morning, that guess looked optimistic, as a selloff continued in premarket trading hours, trading of that stock was then halted, and reports inevitably began to emerge that the company was searching for a buyer after it failed to raise last-minute capital. JPMorgan's banking analysts indicated it remained an attractive asset, calling SVB a “world class” firm that looked “highly attractive” at its current valuation. 

But deposits continued to reportedly exit at a blistering pace, and California regulators decided they had seen enough, announcing that they were shutting down the bank immediately. Insured deposits (i.e. up to $250,000) seem like they will be available by Monday morning, and people and organizations with uninsured deposits will have to see what the company’s assets get sold for. 

It is critical to remember in such a fast-moving situation that no one truly knows what they’re talking about, or, at least, they cannot predict the future, me included. But the question, amidst the panic, which is not over, is whether this is an unfortunate series of events with limited impact, or a broader threat to the tech and/or financial sector. On Friday morning, two other smaller-scale banks, PacWest Bancorp and First Republic Bank, reportedly also had trading halted, which was attributed to trading volatility, i.e. a lot of people scrambling to buy and sell.

Silicon Valley Bank, which had been the 16th-largest in the country by assets, was a mainstay of Silicon Valley for decades, positioning itself as more than a regular bank by offering banking services and guidance to venture-funded startups and late-stage companies alike. The bank claimed as customers almost half of all venture-funded tech and healthcare firms that have recently gone public, and venture firms like Andreeson Horowitz and Kleiner Perkins have also banked there.  “Supporting founders for over 35 years,” the company states.

As a result, many people in the biz had been calling for people to rally around SVB, presumably by keeping their money there, or at least not raising hell on Twitter. “SVB is the most important capital provider to tech startups and the biggest supporter of the community. Now is the time to support them,” said venture capitalist Villi Iltchev. This is, of course, kind of weird on its face (rallying behind a bank?), but also understandable, as business leaders love nothing more than money and certainty, and the demise of Silicon Valley’s bank would most likely lead to less of both. 

Ahead of the firm’s collapse, people began to call for the authorities to step in, albeit in a different way, the argument being that SVB’s collapse could spread throughout the financial sector and hurt tech innovation. One CEO said all that was needed was for the Federal Reserve to utter “some reassuring comments.” Bill Ackman, the billionaire sayer of things, went further, saying a bailout might be in order if the private markets can’t work this whole thing out. That, of course, pissed people off, and you can understand why. This is an industry in which reporters call VCs for quotes on the bank run, only to reach them on gondolas at the top of a mountain in Aspen.