5 Lessons for Investors from Silicon Valley Bank’s Collapse
Common Sense Investing Practices Could Have Prevented SVB’s Failure
In Ernest Hemingway’s classic 1926 novel, The Sun Also Rises, Bill Gorton asks Mike Campbell, “How did you go bankrupt?” Campbell replies, “Two ways. Gradually, then suddenly.” That’s what happened recently with Silicon Valley Bank (SVB), and its parent SVB Financial Group. With over $200 billion in assets, it was the sixteenth-largest U.S. bank before its collapse on March 10, 2023. The 40-year old company became the second-largest U.S. bank failure, behind Washington Mutual, which had an asset base of just over $300 billion at the time of its collapse in 2008 during the Financial Crisis. What went wrong? And how could common sense investing practices have prevented SVB’s failure?
What Happened
SVB primarily served startup companies and venture capital firms. This was an important niche market because companies in this early stage often don’t have access to borrowing funds. Besides getting loans, these firms deposited money at SVB. Those deposits ballooned from $60 billion in March 2020 to almost $200 billion in March 2022. The typical bank model is to take in deposits and then lend out the money at a higher rate than paid on the deposits. However, problems can arise if the is a mismatch between the bank’s…
