Exterior building of Silicon Valley Bank

Making sense of the Silicon Valley Bank collapse 

The government took over SVB on Friday, while proptech leaders offered their support for the bank and expressed concern about the impact of its failure.

Updated March 13, 2023
3 minutes

Key points:

  • SVB will reopen on Monday, with depositors given access to their money.
  • The federal government announced on Sunday that it will cover all deposits, even those above the usual $250,000 insurance limit.
  • Experts say this is unlikely to trigger a systemwide banking crisis like we saw in 2008.

Silicon Valley Bank shut its doors on Friday, victim of the first bank run of the internet age.

It's one of the largest bank failures in history, second only to Washington Mutual's collapse in 2008.

And it's a stunning turn of events for an institution that started the week as an acclaimed pillar of the startup community, known for its support of proptech innovators including Opendoor and OJO, plus a host of other well-known companies.

John Berkowitz, founder and CEO of OJO, took to LinkedIn to offer his support for SVB, which he said "stood by me and my companies through thick and thin." He expressed hope that "a company or individual steps in to rescue this and restore these important solutions for the betterment of the ecosystem and innovation."

The Federal Deposit Insurance Corp took control of SVB on Friday and said that depositors will have access to their insured funds on Monday. However, the vast majority of SVB's deposits — $209 billion as of Dec. 31 but currently "undetermined" — are reportedly greater than $250,000 and therefore not FDIC-insured.

However, the Treasury Department announced on Sunday that the federal government will cover all deposits, an extraordinary step that means depositors will have access to all of their money on Monday and will be able to address immediate needs such as making their payroll. SVB shareholders, senior management and "certain unsecured debtholders" will not be protected. The government also said it would be taking over New York-based Signature Bank, which became the third-largest bank failure in history after a deposit run that leaders blamed on "contagion" from SVB.

As the industry moves into a changed financial landscape, experts continue to assess what happened and what it could mean for the future of tech innovation, the broader economy and real estate.

What happened and why?

SVB announced moves on Wednesday that were intended to strengthen its balance sheet after rising interest rates cut into the value of its bond investments. However, this move spooked some venture capitalists and depositors, who pulled their money out, despite calls for calm by other leading VCs. 

What's next for SVB?

When Washington Mutual collapsed, a systemwide banking disaster followed. Experts say that seems less likely in this case, especially if a buyer is found for SVB and depositors are made whole.

"With WaMu, it was of course all about bad mortgages and the housing downturn — neither of those are factors here," Kirsten Grind, author of The Lost Bank, a book about Washington Mutual, told Geekwire.

What's next for tech and innovation?

What's next for startups will be challenges, not unlike those facing other people, companies and industries affected by rising interest rates and other headwinds.

Spencer Rascoff, entrepreneur and co-founder of Zillow and Pacaso, said via Twitter that banking partners like SVB are "the oil in the machine of startups and tech."

"The next shoe to drop will be when startups realize that their runway is much shorter than they thought because they no longer have access to that venture debt they thought they had," Rascoff said.

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