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Silicon Valley Bank, which was announced to be one of the best banks in the United States for the fifth consecutive year by Forbes, was suddenly declared bankrupt, shocking the world.

Ranked 20th on Forbes' annual list of America's best banks, what happened to Silicon Valley Bank, with $209 billion in assets at the end of 2022? How did it end up like this?

The takeover was suddenly announced

Silicon Valley Bank was shut down by the California Department of Financial Protection and Innovation on Monday, and the Federal Deposit Insurance Corporation (FDIC) appointed the FDIC as receiver, the FDIC said in a statement on Wednesday. The main office and all branches of Silicon Valley Bank will reopen on November 13.

Foreign media reported that the reason for the bank's closure was "illiquidity and insolvency".

Headquartered in Santa Clara, California, with 17 branches in California and Massachusetts, Silicon Valley Bank had total assets of approximately $209 billion and total deposits of approximately $175.4 billion at the end of 2022, according to the announcement.

As the 16th largest bank in the United States, Silicon Valley Bank is a major financial conduit between the tech industry, start-ups and tech workers, according to the Associated Press. But it is precisely the connection to the tech industry that is adding to its troubles. Tech stocks have been hammered over the past 18 months, as the industry has shed jobs and venture capital funding has been declining.

At the same time, the bank has been hit hard by the Federal Reserve's fight against inflation and a series of aggressive interest rate hikes to cool the economy. As the Fed raised its benchmark interest rate, the value of bonds, which were generally stable, began to fall. This is usually not a problem, but when depositors become anxious and start withdrawing money, banks sometimes have to sell the bonds before they mature to make up for the outflows.

That is what happened to Silicon Valley Bank, which had to sell $21bn of highly liquid assets to cover sudden withdrawals and lost $1.8bn on that deal. But the news laid bare the bank's woes.

US President Joe Biden was alerted to an emergency meeting at the US Treasury

Members of Silicon Valley and the financial community publicly called on the federal government Wednesday to force another bank to assume responsibility for its assets and liabilities after the failure of Silicon Valley Bank, CNBC reported.

The Federal Deposit Insurance Corporation (FDIC) said Wednesday that it has set up a special facility to receive insured deposits from Silicon Valley Bank to protect insured depositors and will allow them to withdraw their deposits by Monday morning. For uninsured depositors, dividends will be paid as compensation.

The Federal Deposit Insurance Corporation will insure up to $250,000 per depositor, but most depositors at Silicon Valley banks are businesses with more than that amount, including a large number of startups, according to CNBC.

Reuters reported on Monday that Cecilia Rouse, chairwoman of the White House Council of Economic Advisers, expressed confidence in regulators when asked about the Silicon Valley bank collapse.

On Wednesday, however, some 210 start-up founders and leaders signed an open letter to Britain's chancellor of the Exchequer, Jeremy Hunt. "The Bank of England's view that the failure of Silicon Valley Bank would have limited impact on the UK economy demonstrates a dangerous lack of understanding of the sector and its role in the wider economy today and in the future," the letter said.

In the letter, they warned that "most of us tech founders are doing the math to see if we will become technically insolvent." "Most of the most exciting and dynamic tech businesses bank with Silicon Valley and have no or limited diversity in their deposits," the letter said.

The Treasury said UK Chancellor of the Exchequer Jeremy Hunt had spoken to the governor of the Bank of England, Andrew Bailey, while city Secretary Andrew Griffith held a roundtable with industry representatives on Wednesday.

The current announcement on SVB UK's website indicates that, following talks with the Prudential Regulation Authority, it intends to put SVB UK into insolvency from Sunday evening, provided there is no intervention.

In a separate development, Sky News reported that the Bank of London is considering a takeover of failed SVB UK.

In addition to the UK regulator, a German regulator, BaFin, is also monitoring the impact of the Silicon Valley bank failure, according to Bloomberg.

A spokesman for the German regulator said the current developments were "under consideration" and would be "reflected in our ongoing supervision". SVB germany’s most recent financial disclosure, from 2021, describes it as a "small, non-complex" institution that is not subject to capital requirements because it relies on its parent's capital and liquidity.

The fear has spread to Canada, India and beyond, Bloomberg said. At a Wharton alumni gathering in Singapore, financiers and entrepreneurs shared news of the fallout.