The PowerPoint presentation delves into the Silicon Valley Bank crisis, offering a comprehensive analysis of the challenges that unfolded and their subsequent implications. Beginning with an introduction to Silicon Valley Bank's pivotal role in the technology and innovation sector, the presentation establishes a detailed timeline of events leading up to and during the crisis. A critical examination of the root causes, both internal and external, sheds light on the factors that precipitated the turmoil. The subsequent slide explores the far-reaching impact of the crisis on Silicon Valley's ecosystem, affecting startups, venture capital, and the broader technology industry. Regulatory responses and changes in oversight following the crisis are discussed, providing insights into the evolving landscape of financial regulations. The presentation also reflects on the lessons learned from the crisis, both for Silicon Valley Bank and the industry at large, and examines the strategies employed for recovery. Industry-wide implications, future outlook, and ongoing challenges are presented to provide a holistic understanding of the crisis's enduring effects. The presentation concludes by inviting questions and fostering discussion, encouraging participants to contribute to the discourse on the Silicon Valley Bank crisis.
4. History
• Silicon Valley Bank was founded in 1983 by Wells Fargo
executive Bill Biggerstaff and Stanford University professor
Robert Medearis to focus on the needs of startup companies. The
two former Bank of America managers and tennis buddies came
up with the idea over a game of poker.
• During the 1980s, the bank grew with the local high-tech
economy, achieving 21 consecutive quarters of profitability. It
went from a loss of $39,000 in 1985 to a profit of $12.3 million
in 1991.
Introduction
• Silicon Valley Bank (SVB), a subsidiary of SVB Financial
Group, was the 16th largest bank in the United States.
The bank had assets of about $209 billion in December
2022.
• They specialized in financing and banking for venture
capital-backed startup companies. (Eg Y-combinator)
• Fn February 2023, Forbes listed the bank as #20 of
"America's Best Banks" with a 13.8% return on equity.
What Was Silicon Valley
Bank
5. SILICON VALLEY
BANK CRISES
• On March 10, 2023, Silicon Valley Bank (SVB) failed after a bank run, marking
the third-largest bank failure in United States history and the largest since the
2007–2008 financial crisis. It was one of three bank failures, along with Silvergate
Bank and Signature Bank, in March 2023 in the United States.
• The California Department of Financial Protection and Innovation seized SVB and
placed it under the receivership of the Federal Deposit Insurance Corporation
(FDIC)
• Bank held $209 billion in total assets, with $175.5 billion in total deposits, of
which the bank estimated $151.6 billion (86.4 percent) were uninsured.
• Prior to Thursday March 9, 2023, SVB was in "sound financial condition",
according to the California Department of Financial Protection and Innovation.
• SVB was the leading banker to some og the successful startup of the united States
such as Pinterest, Airbnb and Fitbit
8. • In 2021, global venture funding reached $681B,
leading to a sudden rush of huge cash in hands of
the bank.
• In 2021, SVB saw a mass influx in deposits, which
jumped from $61.76B at the end of 2019 to $189.20B
at the end of 2021.
9. INTEREST
RATE
• Attract customers from big banks SVB paid a
high-interest rate of 2.33%.
• Challenge was to rotate these deposits to
make a minimum profit of 2.33%
• So, they invested about $91B dollars in long-
debted treasury bonds and mortgage bonds.
• Low interests but steady returns.
11. STARTUP WINTER
The Startup Winter - which means the start-up
funding was drying out, and they were finding it
difficult to raise loans at a reasonable interest rate.
So, they started withdrawing their deposits from
their banks.
This is where SVB faced the crisis. Its deposits
dropped by $20B in just 3 quarters.
This forced SVB to recognize a $18B Loss, which it
need to fill through a capital raise.
To cover up these losses, SVB tried to raise $2.25B
from investors in the form of equity and debt.
This is where the panic started, where all their
clients including VCs, instructed their portfolio
businesses to pull their cash from the bank.
12. • On March 10, 2023, Silicon Valley
Bank (SVB) failed after a bank run,
marking the second-
• largest bank failure in United States
history and the largest since the
2008 financial crisis. • This led to
SVB's stock prices plunging by 60%
in just 1 day. The bank had to stop
trading in its shares.
• FDIC created a new bank called the
National Bank of Santa Clara to
protect insured depositors of SVB.
• 89% of SVB's $175 billion in deposits
were uninsured as of the end of
2022
• Here were concerns over whether
small-business clients would be
able to pay their staffs, with the
FDIC only protecting deposits of
up to $250,000.
• SVB failure created a panic
among the depositors of other
banks which led to a bank run
IMPACT
AFTER SVB
COLLAPSED
The startups struggling financially
cannot make payroll in the short
term.
Indian startups have over $1M stuck
in SVB accounts.
A mass panic in the U.S. stock market
and international investor community.
• FDIC, which had insured the bank,
took over and $175B in customer
deposits came under their control.
13. • Excessive Rationality-Assumption Bias:
• Definition: Understand the concept of "excessive rationality-assumption bias" as a
tendency to underestimate irrational behavior, particularly in the context of bank
runs.
• Global Impact: Recognize the global implications of this bias, leading to a
sequence of events starting with a run on Silicon Valley Bank and spreading to
Credit Suisse after its acquisition by UBS.
2. Self-Fulfilling Prophecy
• Panic-Induced Withdrawals: Describe the panic-induced customer
withdrawals that led to the downfall of Silicon Valley Bank and
Signature Bank.
• Herd Mentality: Explain how the herd mentality, triggered by the
actions of a few, intensified the fear and prompted a rush to withdraw
cash.
3. Depositors' Irrational Behavior
• Crowd Psychology: Emphasize how fear-driven actions of a
few depositors can escalate into a panic involving a larger
group due to crowd psychology.
• Flight to Safety: Apply behavioral finance principles like
"information asymmetry" to explain rationality in the
context of depositors seeking safety during a panic.
Behavioral
Biases
4. Irrationality in Bank Runs
• Human Psychology: Acknowledge the inherent irrationality in human
behavior, especially during times of fear and uncertainty which
Highlights the "fight or flight" reaction that depositors experience
during fear, leading to excessive pessimism and irrational decision-
making.
