Silicon Valley Bank opened in 1983 to service new startups in the tech industry. California's high taxation is causing new tech startups to locate in other areas.
Basically, Silicon Valley Bank lost its customer base.
It's California. The entire state is in decline. The California banks will fail along with everything else.
SVB's customer base was not necessarily all California. SVB had a great headquarters location to access tech VC and PE funds so there was (is) heavy deposit base from CA for that reason. They operate in many states (not just CA) and have possibly the best commercial treasury management system in the country and therefore attracted deposits from private equity and real estate funds from all over the nation because fund managers care about treasury management systems. If what has been reported is correct, around 90% of the deposits were over the FDIC $250K limit, likely because fund managers tend to keep pretty hefty deposits on hand.
My understanding is that multiple dominos fell to make this collapse happen: deposit base decreasing because of weakness in the tech sector and leadership not getting ahead of that phenomenon, making the "safe" decision to load up on Treasuries at 80 bps yield a few years ago, having to sell those treasuries at a discount recently because of increased yields in those markets, stock price plummeting as a result of these actions, VC / PE / CRE fund managers encouraging each other to pull deposits, etc.
Some of these issues originate with the Fed pushing interest rates to control inflation. I'm sure there are other banks that hold Treasuries that can't sell them without taking a loss as SVB was forced to do. Also, mortgages and home loans are a related category. I'm sure some banks are holding low-yielding "jumbo" mortgages on book that they can't exit without taking a loss. Other problems right now could include developers not being able to exit construction loans because they underwrote lower interest rates and a handful of issues in CRE markets with certain product types that may see assets end up in bank OREO departments.
Unless they pull a rabbit out of a hat, which they might, the Fed appears to me to be in a position where they can keep raising rates and risk additional bank failures or they can start dropping rates in which case they will have to deal with additional inflation. Somewhat of an intellectually interesting conundrum with major consequences whatever they decide. With that said, they have pulled a few rabbits out of hats over the years. Two I can think of off the top of my head were Operation Twist 50 or 60 years ago and how they used QE in 2008.
