On March 10, 2023, a $220 billion bank collapsed in less than 48 hours. Not because of fraud, not because of exposure to toxic assets, but because of a combination of long-dated government bonds, uninsured deposits, and venture capitalists' group chats. This is the story of Silicon Valley Bank (SVB), and one of the most important lessons in cash management in recent memory.
Founded in 1983 - legend has it, off the back of an impromptu poker game in Menlo Park - Silicon Valley Bank carved out a niche where traditional banks simply didn't want to go: banking young tech companies that were deemed too risky for conventional lending. For forty years, that bet paid off. At its peak, SVB counted an overwhelming share of America's venture-backed start-ups among its clients, along with the funds that backed them.
That specialisation was a strength. As we're about to see, it was also a profound structural weakness.
During the pandemic, fundraising hit record highs. Flush with freshly raised capital, U.S. start-ups parked their cash with their go-to bank: SVB. Between end-2020 and end-2021, deposits surged from $102 billion to $189 billion, an increase of nearly 85% in a single year.
The problem: a bank can't let $90 billion in new deposits sit idle. So SVB put the money to work, ploughing it into long-dated bonds, primarily U.S. Treasuries and mortgage-backed securities (MBS). Assets widely considered safe, but with a high duration (i.e. sensitivity to interest rate movements), ranging from five to seven years.
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By end-2022, around 55% of SVB's assets were tied up in these long-dated bonds. On the other side of the balance sheet, deposits could walk out the door at any moment. The whole thing looked like a house of cards: fine in calm weather, one gust away from disaster.
From March 2022, the Federal Reserve embarked on one of the most aggressive rate-hiking cycles in its history, pushing rates from 0.25% to over 4% in less than 18 months, in a bid to tame post-Covid inflation.
When rates rise, the value of existing bonds falls mechanically. We break down exactly why in our article on bond duration. For SVB, the result was an estimated $15–18 billion in unrealised losses on its bond portfolio by end-2022, roughly equivalent to the bank's entire equity base.
As long as those bonds weren't sold, the losses remained on paper. But SVB was now in a precarious position: if clients started pulling their money, the bank would have to sell those bonds at a loss to meet withdrawals.
At the same time, the tech ecosystem was going through its own reckoning. Fundraising dried up, IPOs vanished, and start-ups began burning through the cash reserves they'd built up in the boom years. The result: deposit outflows at SVB accelerated, forcing the bank to crystallise losses it had been hoping to sit on quietly.
On March 8, 2023, SVB tried to get ahead of the situation. It announced the sale of $21 billion in securities at a $1.8 billion loss, alongside plans to raise $2.25 billion in fresh capital. The goal: reassure the market.
The effect was the exact opposite. The announcement confirmed what some had begun to suspect: the bank was under serious strain. Within hours, several top-tier venture capital funds were explicitly telling their portfolio companies to pull their money out.
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What followed moved at a speed the banking world had never seen before. Unlike the bank runs of the past - queues snaking around the block, people waiting days to withdraw their savings - this one happened online, in a few clicks. On March 9, SVB faced $42 billion in withdrawal requests in a single day: 25% of its total deposits. For context, at the height of the Washington Mutual collapse in 2008, the daily peak never exceeded 2%.
On March 10, US regulators shut the bank down and placed it under the control of the FDIC (Federal Deposit Insurance Corporation). It was the largest US bank failure since 2008.
The risk of contagion was very real. Plenty of other American banks were sitting on similar unrealised bond losses. To prevent a systemic crisis, the authorities made two exceptional calls.
First: guarantee all SVB deposits in full, including amounts above the FDIC's standard $250,000 insurance cap. Second: the Fed launched the Bank Term Funding Program (BTFP), allowing banks to borrow short-term by pledging their bonds as collateral at face value, side-stepping the need for forced sales at depressed prices.
In the UK, SVB's local subsidiary - a key banking partner for many European start-ups - was snapped up by HSBC for a symbolic £1, preserving day-to-day operations for thousands of businesses.
The ripples also reached the stablecoin world. Circle, the issuer of USDC, revealed that $3.3 billion of its reserves - around 8% of the total - were held at SVB. USDC briefly lost its dollar peg, dipping below $0.90, before the authorities' intervention restored confidence.
The collapse of SVB wasn't bad luck, and it wasn't irrational panic. It was the predictable outcome of three compounding vulnerabilities.
First: deposit concentration. When 90% of your depositors belong to the same ecosystem, share the same investors and the same instincts, a single negative signal can trigger a simultaneous, massive exit.
Second: interest rate risk, chronically underestimated. In a world of rock-bottom rates, loading up on long-dated bonds seemed harmless enough. The sharp rate rises of 2022 served as a brutal reminder that duration carries real market risk — even on government securities.
Third: the speed of information in the digital age. A bank run that took ten days in 1984 (Continental Illinois) can now play out in a matter of hours — or minutes. Self-fulfilling prophecies have never moved faste
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If the Lehman Brothers crisis shattered the myth of "too big to fail", SVB showed that systemic risk is no longer just about size. It's about the density of interconnections, and how quickly trust can evaporate.
At Spiko, we offer two families of products to put your cash to work: short-term money market funds invested in Treasury Bills, and our Smart Cash range, which delivers an enhanced daily return through Amundi's TRS strategies. Available in euros, dollars and sterling, with permanent liquidity: no notice period, no penalties, no withdrawal fees.
Why do bonds lose value when interest rates rise? When rates go up, newly issued bonds offer higher yields. Existing bonds, now less attractive, see their prices fall to compensate. The longer a bond's duration, the sharper that sensitivity. In 2022, this dynamic triggered a quiet but brutal crash across bond markets worldwide.
"Pull your money out" On the evening of March 8, 2023, a number of prominent VC funds - including Founders Fund, Peter Thiel's vehicle - told their portfolio companies in no uncertain terms to withdraw their deposits from SVB. The message spread almost instantly across the tech ecosystem's private networks.
The self-fulfilling prophecy of a bank run The fear of a bank failure can be enough to cause one. When depositors expect others to withdraw, the rational move is to get there first. It was this dynamic, not any pre-existing insolvency, that brought SVB down so suddenly.
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