Part 6/12:
SVB's downfall was precipitated by its holding of long-term securities that declined in value as interest rates spiked. When depositors began withdrawing funds, the bank was forced to sell securities at a loss. The bank’s inability to meet withdrawal demands and its unsuccessful attempt to raise capital through a stock offering led to a loss of market confidence. Depositors rushed to withdraw their funds, triggering a classic bank run.
Most of SVB's securities were "held to maturity," meaning unrealized losses didn't show on the books until the securities had to be sold. Once liquidated in fire sale conditions, these losses became painfully apparent, leading to the bank's collapse. The market reaction was swift, and the Federal Reserve’s role in managing the fallout is now under scrutiny.