👉 Background: Silicon Valley Bank (SVB) was the bank that tech startups and venture capitalists would go to when they got investment. It tripled its assets to $209 million USD of assets by December 2022 after rapid growth in the tech space.    

👉 What happened: SVB decided to invest $80 million of customer deposits into mortgage-backed securities. But here's the thing: by late 2022, startups weren't topping up their bank deposits. In fact, they were withdrawing cash as companies burnt through money. So, SVB had to liquidate (ie sell) $21 billion of their mortgage-backed securities for a $1.8 billion loss.

👉 What else: When SVB tried to raise more capital to cover the loss, investors were more spooked than Joaquin Phoenix in The Joker. It led to a major bank run and the Federal Deposit Insurance Corporation or FDIC, a government agency, took over the bank.

What's the key learning?

💡A bank run happens when a large group of bank customers withdraw their money at the same time. Essentially, it is based on fears that the bank is becoming insolvent and all customers will lose their money.

💡It's not uncommon for banks to lend out or invest their customers' deposits because the assumption is that not every customer will need to withdraw all of their money at the same time. But SVB invested too much money in long-term securities while the investment market was changing. The only way to take their money out was to absorb the $1.8 billion loss.

💡It didn't help that many VC's told their portfolio companies to withdraw all their money from SVB and this is part of the reason for the collapse of the 16th largest bank in the US.

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