A few weeks ago, almost nobody knew about Silicon Valley Bank. But for the last 48 hours, it has been the talk of the town: the Californian bank has just gone bankrupt in an extreme panic that is reminiscent of the 2008 financial crisis and the fall of... Lehman Brothers.

Silicon Valley Bank is not a small bank. It has just over $200 billion in assets under management. Its collapse is the third largest bank failure in American history. Only Washington Mutual ($300 billion), which has since become a savings bank, and Lehman Brothers ($600 billion) are bigger bankruptcies.

The bank for start-ups and crypto

Created 40 years ago, the Santa Clara-based Silicon Valley Bank has quickly established itself as a key player in the American Tech industry.

It finances start-ups, giants like Shopify or Beyond Meat, the biggest funds on the planet (Andreessen Horowitz in particular), and works with crypto players... In particular, it manages part of the USDC stablecoin reserve of the American Circle, which has confirmed that it has a little more than $3 billion in reserves blocked in the institution.

As soon as the news was confirmed, the 2nd largest stablecoin on the planet (about $40 billion in capitalization) started to rock. The USDC momentarily lost its parity with the dollar. At the beginning of the weekend it fell a little below $0.90, before returning to around $0.95 after Circle announced in a statement that the company would guarantee the value of its stablecoin "no matter what".

To calm things down, the world's largest exchanges like Binance and Coinbase have removed the ability to sell USDC for BUSD or dollars. "This measure will cease when banks reopen on March 13," Coinbase said. Enough to calm the contagion? Not so sure.

How did SBV implode in 48 hours?

It all started on Wednesday evening. Faced with a large demand for cash from its clients, mainly start-ups, SVB had to liquidate part of its portfolio of U.S. Treasury bonds in a hurry.

The bank sold $21 billion in bonds, taking a $1.8 billion loss, before announcing a $2.25 billion capital increase to offset the loss.

Its share price collapsed by 60% in 24 hours.

Why did all the start-ups ask for cash?

With the very accommodating monetary policies of the Covid era, start-ups were flooded with cash, which they invested with SVB. This money was invested by SVB in US Treasury Bills, i.e. very low risk investments; the "only" risk is that the US will default.

The problem is that in the last two years, the context has changed. In order to fight inflation, the Fed very quickly raised its rates (currently between 4.5% and 4.75%). Obtaining a loan is now very expensive for start-ups, many of which have therefore turned to SVB to recover their deposits, which were therefore placed in Treasury bills...

If customers withdraw their money at the same time, not everyone will get their money back. This is called a "bank run". And that's what happened.