Shed no tears for investors in Silicon Valley Bank (svb). On March 10th the bank, which had $212bn of assets, failed with spectacular speed, making it the biggest lender to collapse since the global financial crisis of 2007-09. Most of SVB’s depositors were Bay Area tech startups with accounts holding well in excess of the $250,000 that is insured by the federal government. They had fled and their panic was rational. By loading up on long-term bonds, SVB had taken an enormous unhedged bet on interest rates staying low. That bet went wrong, leaving the bank insolvent (or near enough). The fact that shareholders have been wiped out and bondholders will take big losses is not a failure of the financial system. A bad business has been allowed to go bust.
It is what happened next that reveals the flaws in America’s banking architecture. SVB probably had enough assets for depositors to have got all or almost all of their money back—but only after a long wait. This left many tech firms facing life in a financial deep-freeze; Roku, a streaming giant, had nearly $500m tied up in SVB. Across the technology sector, lay-offs and bankruptcies loomed. And America’s regulators and government seemed to fear that depositors were losing faith in other banks, too. On March 12th they judged SVB too big to fail and guaranteed all the bank’s deposits. If the sale of its assets does not cover the costs of the depositor bail-out, a fund that is financed by all banks will have to chip in, penalising the whole industry for the recklessness of a single institution.