Massive $42 Billion Withdrawal Attempt Sparks Panic Among SVB Depositors and Investors!

Silicon Valley Bank faced one of the biggest US bank runs in over a decade as investors and depositors attempted to withdraw $42 billion on Thursday, according to a regulatory filing submitted the following day. The bank had a negative cash balance of $958 million at the close of business on March 9, prompting California’s Department of Financial Protection and Innovation to take possession of the lender and place it into Federal Deposit Insurance Corp. receivership. The scale of attempted withdrawals was so large that the bank exhausted its available cash reserves and struggled to obtain more.

Despite efforts by the bank, with the assistance of regulators, to transfer collateral from various sources, the bank was unable to meet the cash letter sent by the Federal Reserve, as noted by Commissioner Clothilde Hewlett in the order filed. The root cause of the bank run was a letter that Silicon Valley Bank’s Chief Executive Officer, Greg Becker, sent to shareholders on March 7. The bank had recorded a $1.8 billion loss on the sale of US treasuries and mortgage-backed securities and had therefore formulated a plan to raise $2.25 billion of capital to shore up its finances.

This announcement prompted customers, including venture-capital firms that the bank had worked with over the years, to withdraw their money. Among the firms advising their startups to pull their cash from the bank were Peter Thiel’s Founders Fund, Coatue Management, Union Square Ventures, and Founder Collective. According to insiders, the withdrawals initiated by depositors and investors amounted to $42 billion on Thursday alone.

Despite being in sound financial condition before Thursday, the bank’s solvency was severely impacted by the withdrawals. The California watchdog stated that the run “caused the bank to be incapable of paying its obligations as they come due,” rendering the bank insolvent. As a result, the California DFPI closed the bank and placed it into FDIC receivership, representing the largest failure of a US bank since the financial crisis.

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