Collapse of Silicon Valley Bank Signals Trouble for Banking Industry

BILAL RAZZAK ‘25 (HE/HIM) POLITICS EDITOR

The Bank of the United States, now referred to as the First Bank of the United States, opened for business in Philadelphia in 1719. Since then, banks have become an integral part of everyday life in the United States. Today, there are over four-thousand banks in the country, and they control more than twenty-three trillion dollars in assets. Over the last week and a half, however, the banking industry in the country has become unstable marked by the collapse of Silicon Valley Bank (SVB).

SVB was the 16th largest bank in the U.S and one of the most influential financial institutions in the world; in December 2022, its assets exceeded two-hundred billion dollars. While SVB was an extremely versatile bank, offering their services to all types of clientele, they specialized in servicing startups and venture-backed firms. According to the company’s website, over forty percent of venture-backed technology and health firms were clients of SVB in some manner. With such powerful backing and reserves, Silicon Valley Bank’s collapse seemed implausible, even in the days leading up to its termination by federal regulators.

From 2019 through 2022, SVB experienced significant growth. Because of this, they had an excess of dollars, some of which they held in excess cash flow. For most of it, however, the bank invested in other long-term debts. Typically, these investments have lower returns, but also have a lower-margin for risk. Recently, The Federal Reserve decided to increase interest rates in order to curb national inflation. This meant that SVB’s bonds became riskier investments. Since investors could now buy bonds with higher interest rates, the bank’s assets devalued. Coupled with this loss in value, some of Silicon Valley Bank’s customers hit financial troubles; they started to withdraw large sums altogether from the bank. To make these withdrawals, the bank had to sell many of its devalued bonds and assets. This resulted in an almost two billion dollar loss for the bank, marking the beginning of the end for the forty year old financial giant.

SVB was a large bank and they did not manage the average citizen’s funds. However, their collapse still signaled potential doom for the banking industry. The bank’s collapse would signal to investors in other industries to pull their money from other banks. Once larger companies started to take out their money, so too might the average citizen, and potentially cause widespread panic—the reason for most bank failures. To combat this, the Federal Reserve and Treasury Department announced that they would reimburse those who lost money in SVB’s collapse. Some economists have compared the move to a bailouts.

In terms of proximity to Davidson, bank insolvencies hit close to home. Charlotte is considered the second-biggest banking center in the United States. It is home to the headquarters of more than twenty banks and twenty five credit unions. The