Silicon Valley Bank 2023: How a Bank Run Unfolds in the Smartphone Age

Why the collapse of a US bank affects your business too

For most owners, their bank is not a risk but a constant. That is where next month's salaries, the tax reserve, and the money for the next machine are kept. Thousands of companies saw Silicon Valley Bank, SVB for short, the same way. In March 2023, many of them could not access their money for a weekend.

This article therefore asks: How did the run on Silicon Valley Bank unfold, why was it so fast, and what follows for a business that trusts its bank? To answer it, we first describe the documented facts, then explain the bank run model, weigh two readings on the role of social media, and finally derive a test for your own money.

What happened: the documented facts

SVB, based in Santa Clara, California, was the bank of the start-up scene. Many founders, venture capitalists, and young technology companies kept their accounts there. In 2020 and 2021, enormous sums of venture capital flowed into these firms, and the money ended up as deposits at SVB. The bank tripled in size. Because loan demand did not grow at the same pace, it invested a large part of the deposits in long-dated government bonds and mortgage-backed securities. According to the Federal Reserve, these securities made up more than 55 percent of total assets at the end of 2022.

1. 2022: rates rise

   The Federal Reserve raises policy rates in rapid steps. Long-dated, low-coupon bonds lose market value. At the same time, start-ups burn through cash faster because new venture capital becomes scarcer.

2. March 8, 2023: the announcement

   SVB announces that it has sold securities, realizing a loss of 1.8 billion dollars, and plans to raise capital.

3. March 9, 2023: the run

   Customers withdraw around 42 billion dollars in one day, about a quarter of total assets. The share price collapses.

4. March 10, 2023: closure

   According to the Federal Reserve, a further 100 billion dollars or so of outflows are scheduled for the morning. The California regulator closes the bank, and the deposit insurer FDIC takes over.

5. March 12, 2023: guarantee for all deposits

   The authorities invoke a systemic risk exception. All deposits at SVB and Signature Bank are guaranteed, even above the statutory limit of 250,000 dollars.

In total, customers sought to withdraw around 142 billion dollars within two days, according to reports about 81 percent of deposits at the end of 2022. At the same time, the Federal Reserve created a program allowing banks to borrow against government bonds at par for up to one year. It was intended to prevent other banks from having to sell their bonds at a loss.

The thinking model: the bank run according to Diamond and Dybvig

In 1983, the economists Douglas Diamond and Philip Dybvig described why banks are vulnerable to a run. A bank promises to pay out deposits at any time but has invested part of the money long-term. This works as long as only a few withdraw at once. If enough customers fear that the bank cannot serve everyone, it is rational for each individual to withdraw first. The fear then fulfills itself. The articles Stablecoins and MiCA and FTX use the same model.

At SVB, two amplifiers were added. First, interest rate risk: when market rates rise, the price of a bond with a fixed, low coupon falls, because new bonds yield more. Whoever holds it to maturity gets the face value back. Whoever has to sell it earlier realizes the loss. Second, uninsured deposits: anyone with more than 250,000 dollars in the account may lose part of it in an emergency. For a start-up with millions in the account, it is therefore rational to withdraw at the first doubt.

An everyday analogy describes the situation that Spitler (2024) takes up in the title of his article: the shout of “fire” in a crowded theater. Whether there is a fire is secondary for the individual. When everyone runs for the exit, it is rational to run too, and the door is too narrow for everyone at once. At SVB, the door was a bond portfolio that could be turned into cash quickly only at a loss.

A bank does not die of a loss, but of the moment when enough customers believe others are leaving before them.

Why it was so fast: the run by smartphone

Earlier bank runs looked different: queues outside branches, newspaper reports, days or weeks until closure. At SVB, less than 48 hours passed between the announcement and the closure. Many customers knew each other, were connected through the same venture capitalists, and exchanged views in group chats and on Twitter. Transfers could be made by app, even after business hours.

Cookson and Schiller (2023) and colleagues analyzed posts on Twitter about SVB's ticker symbol. According to their account in Fortune, the number of posts rose sharply before the share price collapsed, and banks with more social media attention lost more on the stock market, especially those with vulnerable balance sheets such as First Republic Bank. Spitler (2024), formerly in a senior role at the deposit insurer FDIC, sees a new danger to financial stability in this: misinformation spreads faster than accurate information on social networks, and there are hardly any effective legal remedies against rumors about banks.

Two readings: was it social media or the balance sheet?

After the collapse, blame was quickly discussed. The answers differ widely.

The second reading is supported by the assessment of the Federal Reserve itself. Michael Barr, its Vice Chair for Supervision, told the Senate that the main cause was management, which had not effectively managed interest rate and liquidity risk. The Federal Reserve's report also acknowledged that its own supervision had been too lenient, partly as a result of relief for mid-sized banks from 2019. In a short study, Mboga, Whitesall, and Crooks (2023) arrive at a mixed picture of rate increases, internal risk management, a classic run, and social media as an amplifier.

I consider the balance sheet the cause and the smartphone the accelerator. Cookson and Schiller (2023) also found the steepest share price losses at banks whose balance sheets were vulnerable anyway. A bank with insured, widely spread deposits and short-term investments would have withstood the same rumors. What is new is not the mechanism but the time that remains. What used to take weeks now takes one working day. How the interest rate environment affects businesses is discussed in Interest rates and investment.

In January 2025, the deposit insurer FDIC sued former SVB executives and directors for damages, alleging negligence and breaches of their duty of care. According to available reports, no court decision had been reached by autumn 2026. The presumption of innocence applies to everyone involved.

What the March 8 announcement teaches about crisis communication

The run did not begin with a rumor but with an official announcement. SVB wanted to improve its position by selling bonds and raising capital. But above all, the announcement told customers one thing: there is a loss, and capital is missing. An explanation of why deposits were nevertheless safe came too late for many or did not convince.

This is instructive for owners, because small businesses also have to deliver bad news to banks, customers, and employees. Openness is right, but it needs order and content: first what is secure, then what happened, then what happens next. How companies communicate in crises and what costs trust is described in Deny, justify, distract.

The house bank test for your money

Hardly any business will experience its bank closing overnight. It is not impossible, and the consequences would be serious: salaries, suppliers, and taxes cannot be postponed. From the case, I derive a test that I call the house bank test.

1. How much is where?

   List all balances by bank. Check which part exceeds statutory deposit protection, in Germany 100,000 euros per depositor and bank, and what voluntary protection applies beyond that.

2. Can you pay for two weeks without your main bank?

   Calculate what salaries, rent, taxes, and key suppliers cost over two weeks. Keep this amount at a second bank with separate access.

3. Do terms match needs?

   Invest reserves so that you can get to the money when you need it. A fixed-term deposit over several years is no reserve for next month.

4. Who acts in an emergency?

   Decide who may approve payments via the second bank and how you will inform employees and suppliers.

The principle is the same as with customers: whoever holds too much in one place has a concentration risk. How growth ties up additional liquidity is shown in Growth costs liquidity, and how short-term funding brought down a very different kind of bank in Lehman Brothers 2008.

The values in the worked example are freely chosen. They show that even a simple split reduces the part that would be at risk in a failure. Whether and how you invest reserves is something to clarify with your bank or tax adviser. This article is not investment advice.

Conclusion: trust holds as long as nobody leaves first

To the guiding question: the run on SVB unfolded like every bank run for centuries. A bank had invested short-term deposits long-term, a loss became visible, and it was rational for every customer to leave first. The cause was a balance sheet with high interest rate risk and almost exclusively uninsured deposits from a closely connected industry. What was new was the speed: smartphones, group chats, and social networks shortened the run from weeks to hours.

For a business, the lesson is simple: your bank is a business partner like any other. Whoever keeps all their operating cash in one place trusts not only the bank but also all the other customers who have money there.

• List all balances by bank and mark the part above 100,000 euros per bank.
• Calculate what two weeks of salaries, rent, taxes, and suppliers require.
• Set up a second account with separate access and keep that amount there.
• Decide who approves payments in an emergency and who informs employees and suppliers.