California regulators closed Silicon Valley Bank on Friday and appointed the Federal Deposit Insurance Corporation as receiver after a rapid run on deposits overwhelmed the technology-focused lender, producing the second-largest bank failure in U.S. history and the largest since Washington Mutual collapsed in 2008.

The FDIC said Silicon Valley Bank had approximately $209 billion in assets and $175.4 billion in deposits at the end of 2022. Its March 10 receivership announcement created the Deposit Insurance National Bank of Santa Clara and said insured depositors would have access to insured funds no later than Monday morning. Deposits above the federal insurance limit remained subject to the receivership process as regulators worked through the bank’s assets.

A capital plan becomes a confidence crisis

The failure accelerated with remarkable speed. On Wednesday, parent company SVB Financial Group disclosed that it planned to raise $1.25 billion in common stock and $500 million in mandatory convertible preferred shares, with a separate $500 million investment commitment from General Atlantic. The company’s March 8 SEC filing presented the capital raise as part of a broader effort to strengthen the balance sheet.

SVB had also sold a large portfolio of securities after rising interest rates reduced the market value of bonds accumulated when rates were much lower. A contemporaneous investor presentation said the bank had sold substantially all of its available-for-sale securities portfolio and was seeking approximately $2.25 billion in new capital. Rather than reassure depositors and investors, the announcement intensified concern about the bank’s liquidity and unrealized losses.

By Thursday, withdrawals surged. A Reuters explainer published Friday traced the pressure to the interaction between higher interest rates and SVB’s concentrated customer base. Technology startups had been using cash more quickly as venture funding slowed, increasing withdrawals at the same time that the bank’s longer-duration securities had lost value.

A bank run measured in hours, not weeks

The California Department of Financial Protection and Innovation said it took possession of the bank because of inadequate liquidity and insolvency and immediately appointed the FDIC as receiver. The state regulator’s announcement marked the formal end of SVB as an independently operating bank after a crisis that had unfolded over roughly two days.

A same-day Reuters report said the bank’s shares had fallen sharply and were halted before regulators seized the institution. The speed of the closure reflected a classic vulnerability in banking: even a bank with substantial assets can fail if depositors demand cash faster than those assets can be sold or financed without crippling losses.

SVB’s customer mix magnified the problem. The bank had built a specialized franchise serving venture-capital firms, startups, technology companies and life-sciences businesses. Those clients often hold operating balances well above the FDIC’s standard $250,000 insurance limit. An Associated Press report described companies suddenly confronting questions about payroll and operating cash because large balances were trapped in the failed bank.

Interest-rate risk meets concentrated deposits

The failure is an early and dramatic example of how the Federal Reserve’s rapid rate increases can create stress inside bank balance sheets. Banks commonly invest deposits in Treasury securities and agency mortgage-backed securities. Those instruments have very low credit risk, but their market values fall when interest rates rise. If a bank can hold the securities to maturity, the decline may remain an unrealized accounting loss. If deposit withdrawals force sales, however, those losses become real.

Silicon Valley Bank faced that problem while its startup-heavy customers were already drawing down cash. A Washington Post account reported that the bank disclosed a sale of roughly $21 billion in securities and planned new equity issuance to shore up capital. The disclosure triggered concern that the balance-sheet problem was more severe than customers had understood, accelerating the withdrawals the capital plan was intended to address.

S&P Global Market Intelligence’s March 10 comparison placed the failure behind only Washington Mutual by asset size. The historical ranking is striking because U.S. bank failures have been relatively uncommon in recent years, and the post-2008 regulatory system was designed to strengthen capital and liquidity throughout the banking sector.

The immediate question is what happens to uninsured money

For insured depositors, the FDIC has a clear process. The more difficult issue is the large volume of balances above the insurance ceiling. The agency said uninsured depositors would receive receivership certificates and an advance dividend within the following week, with additional payments possible as assets are sold.

That uncertainty matters because a bank failure can become an operating crisis for businesses even when the failed institution ultimately has substantial recoverable assets. Startups may need cash immediately for wages, vendors and cloud services. A payment weeks or months later is not equivalent to access to a checking account on payroll day.

The government’s challenge this weekend is therefore twofold: resolve Silicon Valley Bank in a way that protects insured depositors and maximizes recoveries, while watching for evidence that fear is spreading to otherwise viable institutions. Treasury Secretary Janet Yellen said Friday that she had convened federal banking regulators and expressed confidence that they had tools to respond.

As of Saturday, the central facts remain stark. A bank with $209 billion in assets moved from a capital-raising announcement to government receivership in roughly 48 hours. The failure demonstrates how quickly confidence can disappear when concentrated deposits, interest-rate losses and digital withdrawals intersect. What regulators do next will determine whether Silicon Valley Bank remains an isolated failure or becomes the beginning of a broader test for the U.S. financial system.