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)