How to become bankrupt in three days

Last Friday, Silicon Valley Bank (SVB) — the largest bank focused on lending to startups in California and the 16th largest in terms of assets in the United States — filed for bankruptcy. The bank’s depositors faced a halt in account transactions and unclear prospects for a return of funds in excess of insurance coverage ($250,000, the equivalent of about 19 million rubles, transactions within this limit will be available again on Monday). The share of such deposits was significantly higher than in other banks (about 90% of $175.4 billion), while the total assets of the bank at the end of last year were estimated at $209 billion, so the bankruptcy was the largest since 2008 (then Washington Mutual Bank with assets JPMorgan Chase bought out for $307 billion).

The bank was the main lender for growing companies – in particular, “graduates” of the Y Combinator accelerator raised funds there. Close ties with the start-up community probably supported interest in the bank, which explains the volume of funds in the accounts, but the predominance of “professional” depositors led to a rapid loss of confidence. To increase liquidity, the bank’s management sold part of the bonds at a loss (it arose due to the increase in Fed rates and the decrease in the cost of securities with lower yields to maturity) and announced the attraction of additional capital – this decision, announced on Wednesday, was the signal to flee, by Friday morning the outflow of funds peaked, and already in the afternoon the appointment of a bankruptcy trustee in the person of the Federal Deposit Insurance Corporation was announced (announcing bankruptcy during the day is not a common practice).

Last week, another bank closely associated with the tech industry, Silvergate Bank, declared bankruptcy (its fall was associated with the liquidation of the FTX crypto exchange), in general, the venture industry faced a reduction in the inflow of new investments (their boom, as well as the growth of other types of excess liquidity and low yields on traditional instruments while the Fed kept rates low), which in turn increased pressure on the SVB balance sheet and forced the bond to sell at a loss. Nevertheless, US Treasury Secretary Janet Yellen attributed the bankruptcy not to problems in the technology sector, but to the loss of the market value of securities “in the environment of an increased discount rate.”

The Fed is also likely to fear possible consequences for the banking system – the regulator has already announced an emergency closed meeting on Monday, while a mechanism to protect uninsured depositors can be found earlier – before the markets open. Direct risks from SVB bankruptcy for the US banking system are limited – provoked by low-quality mortgage loans and falling housing prices, the 2008 crisis led to a sharp tightening of regulation, especially for systemically important banks.