Table of Contents

1. INTRODUCTION.......................................................................................................3
2. ANALYSIS FACTORS LEADING TO SVB'S COLLAPSE IN 2023..........................4
2.1 Why SVB focused on 1 single class of asset this bank stil collpsed.........................5
1. Overreliance on a Single Asset Class......................................................................5
2. The FED's interest rate increase of more than 4% per year is not anticipated......10
2.2 Other factors lead to SVB fallen..............................................................................14
1.Market Volatility....................................................................................................14
2. Mismanagement and Internal Issues......................................................................14
3. Asset Quality and Loan Portfolio..........................................................................14
3. CONCLUSION.........................................................................................................14
REFERENCE....................................................................................................................16
 1. INTRODUCTION
Silicon Valley Bank (SVB) is a high-tech commercial bank that primarily serves the
technology, life sciences, and venture capital industries. Founded in 1983 and
headquartered in Santa Clara, California, SVB has become synonymous with the
innovation and entrepreneurial spirit of Silicon Valley. SVB's reputation as a leading
bank through entire America has been further solidified by its extensive network of
partnerships with venture capital firms, angel investors, accelerators, and other key
players in the industry. These collaborations enable SVB to provide additional value-
added services such as introductions to potential investors or strategic partners. Over
these years, SVB has expanded its presence beyond Silicon Valley and usually to be
nominated as one of the best banks in America or at least top 5 ranking across America.
Therefore, SVB fallen have massively made a shocking wave to everyone. It’s nearly
impossible for a bank with at the level of SVB to be collapsed like this. Yet, Silicon
Valley Bank's collapse was the largest bank failure since Washington Mutual in 2008 and
the second-largest in U.S. history. (NDTV News Desk, 2023)

Just a few days before bankruptcy, Silicon Valley Bank is still considered a prestigious
financial institution in the technology world as providing services to thousands of
startups in the US. However, in just over 48 hours, this 40-year-old bank suddenly
collapsed. This was a completely shocking tragedy

On the other hand, this fallen had been prophesied earlier. "As the Federal Reserve raised
interest rates, bond prices fell, which reduced the market value of Silicon Valley Bank's
portfolio. SVB was reported had mark-to-market losses in excess of $15 billion at the
end of 2022 for held to maturity sercurities." (Brian Chappatta, 2023) Yet but no one
believe until SVB official announcement of bankruptcy.

As any financial institution, SVB faces various risks and challenges that can potentially
lead to SVB’s fallen, even if SVB’s operating system leaders deal with this fallen by
primarily focusing on one very liquid asset class. In this comprehensive analysis, I will
explore several reasons why SVB could collapse despite the effort of SVB’s
administrators. Through my analysis, we could clearly understand why while SVB's
specialization in serving this niche market seemed advantageous at first, it also exposed
the bank to significant risks and at the end of the day is the impressive collapse which
shocked entire American financial industry.
 2. ANALYSIS FACTORS LEADING TO SVB'S COLLAPSE IN 2023
We all know that SVB contains talented people include CEO Greg Becker (Who used to
study in Indiana university, ranked 23th over public school in America) a champion of
the innovation economy since he joined Silicon Valley Bank in 1993 as a banker to fast-
growing technology companies. He is also the chairman of the Silicon Valley Leadership
Group (SVLG) and is on the Executive Committee for the Bay Area Council. This mean
the entire executive board of SVB has more than enough experiences, resources required
(talented employees and liquidity asset), network that is useful to help SVB deal with
incoming risks even before it affected them. That's why this fallen has made a shock
wave over entire globe financial industry. Frankly, SVB went bankrupt for a classic
reason: Customers simultaneously withdrew money and ran away from the bank while
the most amount of asset of the bank was invested and hasn’t made any profit yet. But
factors caused to that situation which made a great bank such SVB got into such trigger
situation had remained unrevealed. Down below is several factors that in author opinion
might cause SVB fallen
2.1 Why SVB focused on 1 single class of asset this bank stil collpsed

1. Overreliance on a Single Asset Class

SVB SVB bank's investment portfolio really lacks diversity when they are too confident
and rely on only one investment asset channel, long-term government bonds and this is
the reason for SVB’s collapsing. How ironically, it’s the truth! The bank’s business was
heavily concentrated in a single sector – venture capital-backed startups in tech and
healthcare – and a single region – Northern California(Oaktree Capital Management,
L.P. 2023). SVB’s total asset at the end of 2022 was $212 billion and they put $90 billion
in government bonds because of rapidly growing deposit at that moment. The moment
SVB buy government bond was 1st quarter of 2022, when banking deposit interest rate
was 0%-0.25% per year while government bond could make a 1.79% profit per year and
the type of bond SVB bought is U.S Government bond, means this bond is extremely
liquidity and this bond also has collateral. This rate means they are making seven times in
profit in 2022.(As a result, 42% of the bank total assets were invested in only a type of
long term investment while all their debt was short term investment).

Figured 1: SVB bank makes profit in 2022 due to that year bank deposit interest rate
 Source: SVB’s balance sheet
Source: SVB’s cashflow statement

Table1 show the timeline off SVB bankruptcy

Timeline SVB activities Reasons and result
2020 SVB’s earnings amount Deposits mainly come from
skyrocketed from $50 billion tech start-up companies and
(2020) to $189 billion (2022). Venture Capital
2021 SVB used short-term deposits to Mismatch in term create
buy MBS and short - term potential risks
government bonds
Mar – 2022 FED continuously increases Bond re-pricing caused SVB
interest rates from 0% to 4.75% massive losses
2022 Venture capital and startups that SV had to sell all of their assets
cannot raise capital have to at a loss
withdraw money
Mar 8th 2023 SVB announced that they need to Investors and depositors feel
raise $2.5 billion to compensate worried -> They took out all
for equity due to the bonds sold at the money
 a loss
Mar 10th 2023 SVB officially announced their FDIC took all responsibility for
bankruptcy SVB's current deposits
Table 1: Timeline of SVB bankruptcy
SVB is a bank specializing in serving technology companies and this bank has developed
rapidly as in recent years because before the Pandemic many technology startups have
been born and have great success. They earn a lot of money and they deposit that money
at SVB. When deposit interest rates were around 0%, the amount of deposits into SVB
skyrocketed, from 60 billion USD in 2020 to over 189 billion USD in 2022. Thus, in
2020 and 2021 alone, SVB received up to 130 billion USD in deposits, this amount is
very large, if compared to the total budget revenue of the whole country of Vietnam, this
amount is twice as much.

Usually, when a bank receives deposits, they will lend it out at higher interest rates to
make profit. But due to having too much money, SVB could not lend it all, so they chose
a more sustainable way, which was to bring a large sum of money to buy long-term
government bonds. This is simply lending money to the US Government and the US
Government will pay the principal plus interest when due day comes. At that time, SVB
took interest from the bonds to pay interest to depositors and still earned a certain profit.

SVB's portfolio of investment assets, after receiving deposits from startups, is invested in
fixed income securities up to 117 billion USD and is divided into two groups: Available-
for-sale (AFF)3 and held-to-maturity (HTM)4. If you receive deposits and invest in
government bonds, the quality of the assets is considered as safe and very liquid because
they lend to the Government and there 100% gurantee chance that the government would
pay the bond interest. But the problem is startup companies that deposit money into SVB
often choose Demand deposit option. They can withdraw their money at any time, and
government bonds often have long terms. As a result, there is a risk of difference between
the term of capital mobilization and investment. 189 billion USD that the bank mobilized,
nearly 125 billion USD were short-term or non-term deposits, and only about 64 billion
USD were long-term deposits. Taking short – term money to invest for a long term is
risky and usually the risk of a difference in term is very large and almost inevitable.
SVB balance sheet show risks when customer withdraw too much money. (Source:
https://www.reddit.com/r/dataisbeautiful/comments/11pnzcm/oc_silicon_valley_banks_b
alance_sheet_why/?rdt=40092)

2. The FED's interest rate increase of more than 4% per year is not anticipated
Risks became reality’s threatens to SVB when inflation increases. Reasons for increasing
inflation: Firstly, due to the impact of the Covid-19 pandemic, the stagnant economic
situation forced the US Government to "pump" in subsidies. Too much money in
circulation causes inflation. Secondly, the Russia-Ukraine conflict causes energy prices to
increase. When energy prices increase, transportation costs and production costs increase,
causing commodity prices to increase, leading to inflation.

And it all starts when inflation occurs. Since March 2022, the US Federal Reserve (FED)
has responded to inflation by increasing interest rates of banking deposit, from 4.5% to
4.75% or 5% per year base on the kind of bank while SVB government bond only create
1.79% profit per year. When interest rates increase, many people find out that depositing
money in banks brings higher returns than investing, which causes them to deposit more
money in banks and the amount of money in circulation decreases.
 FED’s interest rate is a reason for SVB collapsed (Source: Federal reserve bank of
Newyork)

However, due to high interest rates and a difficult economic situation, many startups want
to raise capital by listing on the stock exchange but most are unsuccessful. Besides, many
companies are running out of money after facing the Covid-19 pandemic. In the end, they
had no choice but to withdraw the money they deposited at SVB to pay staff salaries and
other operating expenses.

At this time, SVB has to sell some bonds to get money for those star-up customers to
withdraw. But SVB bought the Government's 10-year HTM bonds and at low interest
rates, only 1.79% while deposit interest rates is 4.5-4.7, so everyone would choose
deposit into the bank to take the higher interest rate instead of buying government bond
that SVB bought. As the result, SVB loss 2.8% percent of interest per year only by
paying interest. This caused SVB to only sell 21 billion USD of bonds. In fact, SVB
bought a total of 128 billion USD in bonds, so the loss was huge. When a loss appears on
the balance sheet, SVB must mobilize capital to offset that loss.
 Figured 2: SVB loss by paying interest rate of depositing.

On March 8, 2023, the Bank announced that: They need to mobilize an additional 2.5
billion USD to balance (SVB CEO, 2023). This made customers depositing money into
SVB think that this bank was lacking money, so some people withdrew money from SVB
for safety and that caused an extremely powerful domino effect. Because the more people
withdraw money, the more worried others are that the money might ru out of and they
will have to withdraw too. As a result, in just two days, customers withdrew from SVB
an amount of up to $42 billion. This is a very large amount of money compare to the
money SVB had in the total asset at that moment. Trust of customers in SVB collapsed
and the bank collapsed as well. Finally, on March 10, 2023, SVB had to officially
announce that: They no longer had cash for customers to withdraw.

While liquidity is an essential characteristic when a bank chose which kind of a class to
invest, relying solely on one asset class can expose the bank to significant risks. Even if
the chosen asset is highly liquid, it may not guarantee long-term stability or protection
against market fluctuations, especially after the pandemic. Diversification is crucial for
any financial institution to mitigate risks and ensure resilience in the face of unforeseen
events.
2.2 Other factors lead to SVB fallen

1.Market Volatility

Another factor that can contribute to SVB's potential collapse is market volatility.
Regardless of the liquidity of the chosen asset, market conditions can change rapidly,
leading to significant losses. In times of economic downturns or financial crises, even
highly liquid assets can experience substantial declines in value. If SVB's entire focus is
on a single asset class that experiences a severe downturn, it could result in substantial
losses and potentially lead to collapse.

2. Mismanagement and Internal Issues

One possible reason for SVB Bank's collapse could be mismanagement within the
organization. Poor decision-making, inadequate risk management practices, and
ineffective leader ship can all contribute to a bank's downfall. Instances of
mismanagement may include excessive risk-taking, failure to adapt to changing market
conditions, or insufficient internal controls. These factors can lead to significant financial
losses and erode investor confidence.

3. Asset Quality and Loan Portfolio

The quality of a bank's assets, particularly its loan portfolio, is crucial for its long-term
viability. If SVB Bank had a high concentration of risky loans or experienced a
significant increase in non-performing loans, it could have strained the bank's financial
position. A deteriorating loan portfolio can lead to substantial write-offs and
impairments, ultimately affecting the bank's solvency.

3. CONCLUSION
In conclusion, despite SVB's focus on highly liquid assets, there are several factors that
could potentially lead to its shocked collapse. How ironically, one of the primary reasons
for SVB's collapse was its heavy concentration on a single asset class. The bank primarily
lent to technology startups and venture capital firms, making it highly dependent on the
performance of these entities. Although this asset class was considered very liquid due to
the high growth potential of technology companies, it also carried inherent risks. The tech
industry is usually known for its volatility and rapid changes, making it susceptible to
market downturns and disruptions. By focusing solely on this asset class, SVB failed to
diversify its loan portfolio, leaving it vulnerable to any adverse developments within the
technology sector. Many startups and venture capital firms faced financial difficulties,
leading to a surge in loan defaults. SVB, being heavily exposed to this sector, suffered
substantial losses as a result.

In conclusion, SVB's collapse can be attributed to some reasons. While specializing in

serving the technology sector initially seemed advantageous, it ultimately proved to be a
risky strategy. The lack of diversification in SVB's loan portfolio and failure to
effectively manage risks left the bank vulnerable to market fluctuations and disruptions
within the technology industry. To avoid similar collapses in the future, financial
institutions must prioritize diversification, implement robust risk management practices,
and closely monitor economic conditions. Diversification across different asset classes
and effective risk management strategies are essential for ensuring long-term stability and
resilience. We all know that in this strict economic situation like nowadays, especially
after we just have been through a tragic pandemic, every bank or economic organization
which have same structure is facing the same risk as SVB regardless of the size and
amount of bank equity. or that economic organization is holding it. Overall, hopefully
through SVB's lessons, other financial institutions will learn some experiences to avoid
unfortunate things from happening.
 REFERENCE
1. NDTV News Desk (2023). Silicon Valley Bank Was Named One Of America's Best,
5 Days Before Fall. https://www.ndtv.com/world-news/silicon-valley-banks-downfall-
boasting-forbes-best-banks-list-while-falling-apart-3854402
2. Brian Chappatta (2023). SVB’s 44-Hour Collapse Was Rooted in Treasury Bets
During Pandemic. https://www.bloomberg.com/news/articles/2023-03-10/svb-
spectacularly-fails-after-unthinkable-heresy-becomes-reality#xj4y7vzkg
3. Hannah Lang (2023). Who is Greg Becker, the head of failed Silicon Valley
Bank? https://www.reuters.com/markets/us/who-is-greg-becker-head-failed-
silicon-valley-bank-2023-03-10/
4. SVB (2023). SVB financial group and subsidiaries consolidated balance sheets,
https://www.sec.gov/Archives/edgar/data/719739/000071973923000021/sivb-
20221231.htm#ibb4dd73a1d3f4bff944b5d35fd2c5e2a_91
5. SVB (2023). Facts at a glance. https://www.svb.com/newsroom/facts-at-a-glance
6. FDIC (2023). FDIC Acts to Protect All Depositors of the former Silicon Valley Bank,
Santa Clara, California. https://www.fdic.gov/news/press-releases/2023/pr23019.html
7. Income statement guy (2023). Silicon Valley Bank's balance sheet: Why customer
deposit withdrawals are a problem.
https://www.reddit.com/r/dataisbeautiful/comments/11pnzcm/oc_silicon_valley_b
anks_balance_sheet_why/?rdt=40092
8. Oaktree Capital Management, L.P. (2023). Lessons from Silicon Valley Bank.
https://www.oaktreecapital.com/insights/memo/lessons-from-silicon-valley-bank