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The lasting effects of the SVB collapse one month later

It has been over a month since the collapse of Silicon Valley Bank (SVB) and the banking scare that followed. Although the news cycle has largely forgotten about it, the banking industry and the greater economy have not.

Before we get into the ripple effects of the collapse, let’s rewind to what started this crisis. Silicon Valley Bank is a California-based bank known for tech sector startups. During the pandemic, the tech sector saw a boom, and many of its companies held their cash in SVB. SVB invested these deposits in U.S. government bonds, some of which were mortgage-backed securities. To curb the high rate of inflation, the Fed increased interest rates, causing the price of SVB’s bonds, especially mortgage-backed securities, to fall. This fall diminished the value of SVB’s portfolio. Combined with the struggling post-pandemic tech sector, SVB was in trouble. As customers began withdrawing their deposits, SVB was forced to sell $21 billion worth of bonds, yielding only 1.79 percent. The announcement of this $1.75 billion loss caused a bank run, during which masses of customers attempted to withdraw money at once. Within 48 hours, SVB collapsed and the federal government was forced to step in.

So, where are we still seeing the effects of this collapse? One company that is certainly dealing with the aftermath is Charles Schwab. Since Schwab has a large securities portfolio that is also underwater, many investors are worried that it could suffer the same fate as SVB. Charles Schwab CEO Walt Bettinger has attempted to calm investors, explaining that new brokerage accounts opened in the last quarter have added new assets to the company and that its portfolio is not made up of an excess of long-dated bonds, essentially insulating it from rising interest rates. Additionally, unlike SVB, 86 percent of Schwab’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC). Despite these reassurances that Schwab is better equipped than the ill-fated SVB, the company still has a long way to go to recover investor confidence. 

Tech startups have also suffered following the SVB collapse. SVB was a popular bank for tech startups, so when it went under, firms scrambled to move their money somewhere else. Other banks, however, were spooked by SVB’s collapse and refused to give lines of credit to these startups. The collapse has not only made it difficult for firms to find new banks but has also hindered fundraising as venture investments dwindle. As investors focus more on risk management, startups will struggle to raise capital, and venture-debt packages may become more expensive. More than a month later, it is clear that the SVB collapse was a long-term blow to the tech sector. 

A lesser-known aspect of SVB is that it had signed a contractual agreement ahead of a past merger designating $11 billion towards affordable mortgage and small-business loans in California. Eleven affordable housing projects in the Bay Area were depending on these SVB loans. After the collapse, SVB was bought out by First Citizens Bank. However, the community benefits plan was not carried over. 

Other large financial institutions, tech startups, and low-income communities are just a few of the many interests affected in the long term by the collapse of Silicon Valley Bank. One can only hope that lessons will be learned from this crisis and that the banking industry will be strengthened as a result.


~ Madison Keezer `26

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