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  • - [Narrator] Four decades after its creation,

  • Silicon Valley Bank was the 16th largest bank in the US.

  • It took just a day and a half for it to fall apart.

  • - This is the second biggest bank failure

  • that's ever happened in the United States.

  • - [Narrator] Once seen as a major tech banking player,

  • SVB's stunning collapse spurred other bank closures,

  • rattled global markets

  • and threatened the livelihoods of startups

  • across the country.

  • So, what went wrong?

  • Silicon Valley Bank opened in 1983

  • to serve fledgling tech companies.

  • Eventually, nearly half of the country's

  • venture capital backed technology

  • and life sciences companies would rely on SVB.

  • Roku, ROBLOX and many others put millions into the bank,

  • helping SVB become one of the nation's largest.

  • - Some of these clients

  • would definitely be considered risky.

  • These are companies that move quickly

  • and their money moves quickly.

  • When things sort of went off the rails,

  • they were quick to move their money out of the bank.

  • - [Narrator] After the banking crisis

  • that triggered the Great Recession,

  • President Barack Obama signed the Dodd Frank Act,

  • making banks like SVB face stricter regulation.

  • - It is designed to make sure

  • that everybody follows the same set of rules.

  • - [Narrator] But eight years later

  • during the Trump administration,

  • some of those regulations on smaller banks were rolled back.

  • - By liberating small banks from excessive bureaucracy

  • and that's what it was, bureaucracy,

  • we are unleashing the economic potential of our people.

  • - Some of the rules were rolled back for these banks

  • that had less than $250 billion in assets.

  • So you have the biggest banks

  • like Bank of America and Chase.

  • Those have very strict rules

  • but the ones that are a step below have looser rules.

  • - [Narrator] Two years later, SVB was flooded with cash

  • as businesses deposited more during the pandemic.

  • Deposits tripled in two years to $189 billion,

  • making 2021 SVBs most profitable year ever.

  • - [Becker] Our core business

  • continues to fire on all cylinders.

  • - [Narrator] So SVB Financial took that cash

  • and bought tens of billions of dollars

  • of longer term US treasuries

  • and government backed mortgage securities.

  • Products usually considered safe.

  • - People and companies just put money in their bank accounts

  • and banks said, we have to do something with this.

  • We have to earn some income on it.

  • So they bought bonds with it.

  • - [Narrator] SVB's securities portfolio

  • rose about a hundred billion dollars in under a year.

  • - After SVB had stockpiled

  • that hundred billion dollars plus in bonds,

  • all of a sudden interest rates rose.

  • - Committee anticipates that

  • ongoing increases in the target range

  • for the federal funds rate will be appropriate.

  • - What happens when interest rates rise is,

  • bond prices fall.

  • Banks, including SVB that were holding onto a lot of bonds,

  • were sitting on a bunch of losses.

  • - [Narrator] Soon, SVB's investments

  • were worth $17 billion less than their fair value.

  • - And so all of a sudden,

  • the gap between what SVB had paid for those bonds

  • and what they were worth on paper

  • had jumped to more than $17 billion,

  • and that was the key risk

  • that would eventually lead to SVB's undoing.

  • - [Narrator] Making matters worse,

  • as interest rates rose, new deposits shrank,

  • falling nearly $30 billion from March to December.

  • Talking about the end of 2022,

  • CEO Greg Becker told CNBC,

  • - We kind of felt that that bottoming out.

  • We've kind of felt that we were

  • kind of at that, that lower point.

  • - [Narrator] The vast majority of the bank's deposits

  • were held in just 37,000 accounts

  • that held more than $250,000.

  • The amount insured by the FDIC.

  • Then in a regulatory filing on March 8th,

  • SVB announced it sold a large chunk of securities

  • at a loss of about $1.8 billion

  • to help it cover that decline in deposits.

  • - The regulatory filing that Wednesday

  • sparked a lot of fear.

  • The stock fell a tremendous amount,

  • which is never a good sign.

  • - [Narrator] And investors were already on edge.

  • Crypto focused bank Silvergate

  • had just announced it would wind down

  • and return all deposits.

  • So the bottom was about to fall out.

  • Startup CEOs began receiving urgent calls

  • from panicked venture capital investors.

  • - He was out of breath like he had just run a marathon

  • and he said, take your money out of SVB.

  • Go into your account,

  • take your money out as soon as possible.

  • - [Narrator] What started as a trickle of withdrawals

  • quickly turned into a tidal wave

  • as word spread across the valley.

  • More and more startups pulled their cash.

  • It was a run on the bank

  • and the beginning of the end for SVB.

  • The next day, the bank's stock price went into free fall

  • as customers tried to withdraw $42 billion in deposits.

  • SVB ran out of cash.

  • - All of a sudden, everyone's saying, whoa, wait a minute.

  • This bank is risky.

  • The bank has enough money to cover deposits

  • if they come out in sort of a peaceful, orderly fashion.

  • When everyone's racing for the exits at once, it doesn't.

  • - [Narrator] That day, regulators seized the bank.

  • The FDIC said in a statement that customers would have

  • full access to their insured deposits in three days.

  • But the bank had more than $151 billion worth of deposits

  • at the end of 2022 that weren't insured.

  • They were over the $250,000 limit.

  • Two days after SVB's collapse

  • a second bank with a different set of problems,

  • Signature failed and was seized by regulators.

  • The third largest failure in history.

  • - And now people are starting to worry about

  • other banks as well.

  • It's very much kind of a a whack-a-mole situation right now.

  • Federal officials, state officials,

  • everyone's in sort of this unenviable position

  • of trying to shore up confidence in the banking industry

  • so it doesn't turn into an even bigger panic.

  • - [Narrator] On Sunday, March 12th,

  • regulators announced that

  • even uninsured deposits over $250,000 from the two banks

  • would be covered.

  • on Monday, March 14th, Signature told clients

  • that due to the US Treasury Federal Reserve and FDIC,

  • all deposits were not at risk.

  • SVB's focus on Silicon Valley

  • made it uniquely vulnerable to a run.

  • - Its fortunes were really tied to

  • the fortunes of this one industry.

  • But what's more, this is an industry

  • that has flighty deposits.

  • You can't really rely on this short-term funding necessarily

  • to support these long-term investments and bonds.

  • - [Narrator] Now some, like President Joe Biden

  • are blaming the Dodd Frank Act rollback for the failures.

  • - I'm gonna ask Congress and the banking regulators

  • to strengthen the rules for banks

  • to make it less likely this kind of bank failure

  • would happen again.

  • - [Narrator] With investigations into SVB underway,

  • the bank's clients will see their money returned.

  • But shareholders are out of luck.

  • When asked about the possibility

  • of bailing out Silicon Valley Bank,

  • the Treasury Secretary said,

  • - We're not going to do that again.

  • But we are concerned about depositors

  • and are focused on trying to meet their needs.

  • (quiet music)

- [Narrator] Four decades after its creation,

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