Silicon Valley Bank’s failure on Friday was an extreme consequence of broad trends squeezing profits and clouding the outlook for the banking sector.
SVB had grown to about $209bn in assets with a client base concentrated among tech and healthcare start-ups. This business proved particularly vulnerable to the impact of rapidly rising interest rates.
When its tech-focused depositors were hit by a cash squeeze driven by the recent downturn in the sector, they pulled money from their accounts to spend or move in search of higher yields. To help cover the withdrawals, SVB sold bonds in its portfolio. It also sold bonds to buy assets with higher yields.
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