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relates to All Your Modern-Day Bank Run Questions, Answered

Illustration: Derek Zheng for Bloomberg Businessweek 

All Your Modern-Day Bank Run Questions, Answered

How interest-rate risk and a focus on tech brought down one of America’s most important banks.

Until a week ago most people outside of California knew little about Silicon Valley Bank. Now it’s gone down in history as the second-largest US bank failure. That escalated quickly.

This was an old-fashioned bank run, like in It’s a Wonderful Life or—our favorite example—Mary Poppins. Banks live or die on confidence. They never have all of their depositors’ cash on hand. Instead, much of that money is invested in loans to homeowners and companies and in bonds. That’s fine as long as (1) those investments don’t tank and (2) depositors don’t start worrying about the health of the bank and scrambling to get their money out before the tills are empty. On Thursday, March 9, depositors got very nervous about Silicon Valley Bank’s investment portfolio and suddenly asked for $42 billion back. The next morning the Federal Deposit Insurance Corp. closed the Santa Clara, California-based bank to stop the bleeding. By Sunday night, federal regulators said they’d guarantee all its deposits, including those over the usual $250,000 limit on FDIC protection.