When Silicon Valley Bank Failed

Silicon Valley Bank failed on Friday in roughly 48 hours. Watching this play out from the inside of the banking industry, what stood out was the speed and how cleanly the mechanics matched what the risk frameworks have always warned about.

The concepts coming up over the weekend, duration mismatch, deposit concentration, liquidity risk, were things I had been picking up gradually as a non-banker getting oriented in this world. SVB turned them into a live case study in less than two business days.

The Run

SVB's problem was a textbook risk. They took in massive deposits during the tech boom and invested heavily in long-dated bonds and mortgage-backed securities when rates were near zero. When the Fed raised rates aggressively, those securities lost significant market value. The bank was sitting on billions in unrealized losses.

That alone would not have killed them. Banks can hold bonds to maturity and eventually get their money back. What killed SVB was the combination of those losses with a concentrated depositor base. Tech startups and venture capital firms held enormous uninsured balances. Over 90 percent of SVB's deposits were above the $250,000 FDIC insurance limit.

On Wednesday, SVB announced it was selling securities at a $1.8 billion loss and trying to raise capital. By Thursday, the stock was down 60 percent and clients were pulling money. By Friday, $42 billion was gone. The FDIC moved in to protect depositors.

I can't get past that number. Forty-two billion dollars in one day. The traditional image of a bank run is lines around the block. This was a digital run. Mobile apps, wire transfers, group chats among VCs telling portfolio companies to move their money. The speed was unlike anything the older models assumed.

The Weekend

Saturday across the industry felt heavy. SVB's depositors did not know if they would get their money back above the insurance limit. Startups that banked exclusively at SVB did not know if they could make payroll Monday. Having been on the startup side of banking relationships before, I understood the panic. Not knowing if an operating account is accessible is a specific kind of terror.

By Sunday evening, it got worse before it got better. Signature Bank was placed into receivership. Then the Fed announced the Bank Term Funding Program, a new lending facility that lets banks borrow against their securities at par value, effectively addressing the unrealized loss problem. Treasury and the FDIC announced that all depositors at both SVB and Signature would be made whole. The response was fast and decisive, and it signaled clearly that contagion would be contained.

The BTFP is the kind of design choice that gets made under pressure but reflects deep familiarity with how the system works. Letting banks borrow at par value against securities that have lost market value addresses the core liquidity crunch without forcing realized losses. From the outside, it looked like regulators doing exactly the work they are there to do.

The View from Community Banking

The view from a community bank is different from the headlines. From what I gather of the structural picture, the deposit concentration that drove the SVB run is unusual, and community banks tend to carry more diversified deposit bases by design. But fear does not wait for nuance.

In a moment like this, every bank is suddenly being asked the same questions. Clients want to know if their money is safe. Boards want to understand the bank's specific exposure to the risks that brought SVB down. The natural response is a hard look at the position. What do unrealized losses look like? How concentrated are the largest depositors? What does the liquidity picture look like if money starts moving?

For most community banks, the answers will be reassuring. The same vulnerability profile is not common across the industry. But asking those questions during a crisis, rather than as part of routine asset-liability planning, is a different kind of conversation. The stakes feel suddenly real.

What I'm Processing

Duration mismatch, deposit concentration, liquidity risk. These ideas took down a $209 billion bank in less than 48 hours. The mechanics were not new. The speed was.

What I keep thinking about is how fast confidence evaporates when the tools exist to act on fear instantly. Mobile banking and digital transfers changed what a bank run looks like. Regulators worked within the resources and information available to them and moved quickly to contain the damage, which is exactly the kind of response a moment like this calls for. The new reality is that fear can move faster than any deliberative process. That is a new constraint for everyone in this industry, and I don't think it has been fully processed yet.