Silicon Valley Bank Collapse: What We Know and How It Happened

The failure of Silicon Valley Bank, based in Santa Clara, Calif., is the largest since the 2008 financial crisis. In the aftermath of that crisis, Congress passed the Dodd-Frank financial-regulatory package, designed to prevent such collapses.

In 2018, President Trump signed a bill that reduced how often regional banks had to submit to stress tests by the Federal Reserve. Last week, as news of Silicon Valley Bank’s failure spread, some banking experts said the Dodd-Frank package might have forced the bank to better handle its interest rate risks had it not been rolled back.

The bank’s failure has raised concerns about other institutions.

Silicon Valley Bank is small by comparison with the nation’s largest banks — its $209 billion in assets pales next to the more than $3 trillion at JPMorgan Chase. But bank runs can happen when customers or investors panic and start pulling their deposits. Perhaps the most immediate concern late this week was that the failure of Silicon Valley Bank would scare off customers of other banks.

Shares of both First Republic Bank, which is based in San Francisco, and Signature Bank in New York were down more than 20 percent on Friday. But shares of some of the nation’s largest banks like JPMorgan, Wells Fargo and Citigroup did not suffer the same fate, and even nudged higher on Friday.

The federal government is racing to decide its next move.

Regulators have been rushing to contain the fallout, especially before markets reopen on Monday and the business week begins.

On Sunday, Treasury Secretary Janet L. Yellen said regulators had been working over the weekend to stabilize the bank — and she tried to assure the public that the broader American banking system was “safe and well capitalized.”

At the same time, she acknowledged that many small businesses were counting on funds tied up at the bank.

Article source: https://www.nytimes.com/2023/03/10/business/svb-silicon-valley-bank-explainer.html