Silicon Valley Bank Run Drained $42 Billion of Deposits

The collapse of Silicon Valley Bank was caused by a massive run on the bank, with customers initiating withdrawals of $42 billion this week.

The bank was placed into Federal Deposit Insurance Corp. receivership on Friday after the California Department of Financial Protection and Innovation (DFPI) determined the bank had been rendered insolvent.

Prior to the run on the bank, the bank was in “sound financial condition,” according to the DFPI. Customers withdrew $42 billion, leaving the bank with a negative cash balance of $958 million.

Here’s the summary of what happened from the DFPI’s order taking possession of the bank:

On March 8, 2023, the Bank announced a loss of approximately $1.8 billion from a sale of investments (U.S. treasuries and mortgage-backed securities). On March 8, 2023, the Bank’s holding company announced it was conducting a capital raise. Despite the bank being in sound financial condition prior to March 9, 2023, investors and depositors reacted by initiating withdrawals of $42 billion in deposits from the Bank on March 9, 2023, causing a run on the Bank. As of the close of business on March 9, the bank had a negative cash balance of approximately $958 million. Despite attempts from the Bank, with the assistance of regulators, to transfer collateral from various sources, the Bank did not meet its cash letter with the Federal Reserve. The precipitous deposit withdrawal has caused the Bank to be incapable of paying its obligations as they come due, and the bank is now insolvent.

Prior to its collapse, Silicon Valley Bank was the 16th largest bank by assets in the U.S. Federal Reserve data shows the bank had $209 billion in assets as of December 31, 2022.