The bank's management made a critical mistake by shifting to longer-term securities in search of more yield, which resulted in fewer deposits coming in and the market value of securities plummeting.

Who were Silicon Valley Bank's depositors, and why were the amount of deposits particularly high during COVID?

Silicon Valley Bank's depositors were mostly startups who received cash from investors, and the amount of deposits was particularly high due to the influx of money during COVID.

Study Notes

Banks facilitate lending and borrowing, making a profit from the difference in interest rates.
Banks rely on a diverse set of depositors for stability in long-term loans.
Bank runs occur when a bank does not have enough assets to pay back all depositors at once.
The establishment of the FDIC in 1933 stopped bank runs by insuring deposits up to $2,500 per account.
Silicon Valley Bank lent a large portion of its deposits to the federal government and homeowners through longer-term securities.
The bank's management made a critical mistake by shifting to longer-term securities in search of more yield.
When interest rates rose, fewer deposits came in and the market value of securities plummeted.
Silicon Valley Bank's depositors were mostly startups who received cash from investors.
The amount of deposits was particularly high due to the influx of money during COVID.
The bank's fate was ultimately the responsibility of its management.

Test your knowledge of banking and finance with our quiz on the rise and fall of Silicon Valley Bank. From the basics of lending and borrowing to the role of the FDIC in preventing bank runs, this quiz covers essential concepts in the banking industry. Learn about the critical mistake made by Silicon Valley Bank's management and the impact of rising interest rates on the market value of securities. Discover how the bank's depositors, mostly startups, were affected by its downfall and why the influx of money during COVID played