Silicon Valley Bank failed in March 2023 because it held too many long-term bonds that lost value when interest rates rose, and when depositors rushed to withdraw their money all at once, the bank did not have enough cash on hand to pay them

Silicon Valley Bank (SVB) was a mid-sized bank based in Santa Clara, California, that primarily served technology companies, venture capital firms, and their employees. For years it grew rapidly by taking deposits from these clients and investing heavily in U.S. Treasury bonds and mortgage-backed securities. When the Federal Reserve began raising interest rates in 2022, the value of those bonds fell sharply—but SVB kept them on its books at the old, higher values rather than selling them at a loss.

On March 8, 2023, venture capital firm Silverado Capital published a report warning that SVB was undercapitalized. The same day, SVB announced it had sold $21 billion in securities at a loss and would raise new capital. Depositors panicked. Within 48 hours, they withdrew $42 billion. By March 10, SVB was insolvent and closed by regulators. The Federal Deposit Insurance Corporation (FDIC) took over the bank and began paying out insured deposits.

Key Takeaways

  • SVB failed because it invested heavily in bonds that lost value when interest rates rose, then could not cover a sudden wave of large withdrawals.
  • The FDIC insured deposits up to $250,000 per depositor per bank, so most individual account holders were protected even though the bank closed.
  • Many tech companies and venture firms had deposits far above the $250,000 limit and initially faced losing the excess, though the government later backstopped all deposits.
  • The failure exposed a gap in how banks manage interest rate risk and how quickly digital banking allows depositors to move money in a crisis.
  • SVB's assets were sold to First Citizens BancShares in March 2023, and most depositors eventually recovered their full balances.

How SVB's Business Model Created the Risk

SVB was not a retail bank like Chase or Bank of America. It served a narrow, wealthy clientele: technology startups, venture capital firms, and their founders and employees. This meant most of its depositors were sophisticated investors who understood risk and could move money quickly if they lost confidence.

The bank took these deposits and invested them in long-term bonds—primarily U.S. Treasuries and mortgage-backed securities issued by Fannie Mae and Freddie Mac. These are normally very safe investments. But SVB bought them when interest rates were near zero. When the Federal Reserve raised rates throughout 2022 and into 2023, the market value of those older, lower-yielding bonds fell. A bond paying 1.5% is worth less when new bonds pay 4% or 5%.

SVB did not sell these bonds to lock in the losses. Instead, it kept them on its balance sheet at their original value—a practice called "hold to maturity" accounting. On paper, the bank looked fine. In reality, it was sitting on roughly $15 billion in unrealized losses by early 2023.

The Run on the Bank and the Speed of Digital Withdrawals

A traditional bank run—where customers line up at the teller window to withdraw cash—takes time. Depositors have to travel to the branch, wait in line, and complete the transaction in person. This gives the bank time to manage the outflow or call in loans to raise cash.

SVB's depositors did not have to do any of that. Most were large companies and investment firms with online banking access. On March 9, 2023, after news of the bank's problems spread, they simply logged in and initiated wire transfers. Within hours, billions of dollars left the bank electronically. By the end of that day, SVB had received withdrawal requests for $42 billion—nearly a quarter of its total deposits. The bank had only about $1 billion in cash available.

Regulators closed SVB on Friday, March 10. The FDIC announced it would assume control and begin paying out insured deposits on Monday, March 13.

FDIC Insurance and Who Lost Money

The FDIC insures deposits up to $250,000 per depositor per bank account. This protection is automatic—you do not have to do anything to activate it. If you had $250,000 or less in SVB, you were fully covered and received your money back.

The problem was that many of SVB's depositors had far more than $250,000. Venture capital firms often held $10 million or more. Tech founders and executives had deposits in the millions. These depositors faced losing everything above the $250,000 threshold—potentially hundreds of millions of dollars across the industry.

On March 12, 2023, the Federal Reserve, the FDIC, and the Treasury Department announced an emergency measure: they would may provide all deposits at SVB, regardless of amount. This meant even depositors with $10 million in the bank would get their full balance back. The government did the same for Signature Bank, which failed days later, and for First Republic Bank, which failed in May 2023.

What Happened to SVB's Assets and Customers

The FDIC did not simply return SVB's assets to depositors. Instead, it sold the bank as a going concern. On March 26, 2023, First Citizens BancShares agreed to buy substantially all of SVB's assets for $16.5 billion. This sale included the customer relationships, the loan portfolio, and the remaining securities.

Most SVB customers were transferred to First Citizens. Their accounts remained open, and they could access their money. Some customers chose to move to other banks, but the transition was orderly because the government had already may provide all deposits.

The FDIC's sale of SVB to First Citizens meant that taxpayers did not directly pay for the failure. However, the FDIC's insurance fund did cover the cost of guaranteeing uninsured deposits, which reduced the fund's reserves.

Why This Mattered Beyond SVB

SVB's failure was significant for several reasons. First, it was the second-largest bank failure in U.S. history by assets, after Washington Mutual in 2008. Second, it exposed a vulnerability in the banking system: banks can appear solvent on paper while holding massive unrealized losses if interest rates move sharply.

Third, it revealed how quickly digital banking can trigger a bank run. In the 1980s and 1990s, a bank run took days or weeks because customers had to physically withdraw cash. SVB lost $42 billion in deposits in 48 hours because its depositors could move money with a few clicks.

Fourth, the failure raised questions about bank regulation. SVB was subject to stress tests and capital requirements, but regulators did not catch the interest rate risk until it was too late. After SVB's failure, the Federal Reserve tightened rules for mid-sized banks and required more frequent stress testing.

How This Affected Your Bank Account

If you banked at SVB, you were covered by the government may provide, and you received your full balance regardless of the amount. If you banked elsewhere, SVB's failure did not directly affect your account. However, it did trigger broader concerns about bank safety, and some depositors moved money to larger banks or to banks insured by the FDIC.

The failure also reinforced the importance of the $250,000 FDIC insurance limit. If you have more than $250,000 in a single bank, you can protect the excess by opening accounts in different names (such as a joint account or a trust account), because each account type is insured separately. You can also split deposits across multiple banks.

Frequently Asked Questions

Did I lose money if I had a deposit at SVB?

No. The government may provide all deposits at SVB, so you received your full balance regardless of how much you had in the bank. This protection applied even to deposits above the normal $250,000 FDIC insurance limit.

Why did the government may provide deposits above the FDIC limit?

Regulators feared that if large depositors lost money, they would withdraw funds from other banks, triggering a broader financial crisis. By guaranteeing all SVB deposits, the government prevented panic from spreading to other institutions.

Could this happen to my bank?

It is unlikely if your bank is large and well-capitalized, but interest rate risk exists at all banks. You can protect yourself by keeping no more than $250,000 at any single bank, or by splitting larger amounts across multiple banks or account types. The FDIC website has a tool to calculate your coverage.

What changed after SVB failed?

The Federal Reserve increased capital requirements for mid-sized banks, required more frequent stress testing, and tightened rules around interest rate risk management. Banks also began holding more cash and fewer long-term bonds relative to deposits.

Is my money safer now?

The banking system is more resilient than it was before SVB's failure, because regulators now require banks to model and report interest rate risk more frequently. However, no bank is risk-free. The best protection remains keeping deposits under $250,000 per bank and spreading large balances across multiple institutions.