California regulators closed Silicon Valley Bank and handed it to the FDIC, ending the run on the 16th-largest bank in the United States and the financial backbone of the startup economy. It was the largest U.S. bank failure since Washington Mutual in 2008.

The mechanics were a textbook duration mismatch. Flush with startup deposits during the 2020-2021 boom, SVB had parked much of the money in long-dated government bonds. As the Fed raised rates, those bonds lost market value, and as venture funding dried up, startups drew down deposits faster than expected.

To raise liquidity, SVB sold $21 billion of securities on March 8 at a $1.8 billion loss and tried to raise fresh equity. The disclosure, paired with a Moody's downgrade, ignited a panic that spread at the speed of group chats: prominent venture capitalists urged portfolio companies to pull funds, and on March 9 customers attempted to withdraw an astonishing $42 billion.

Roughly 89% of SVB's $172 billion in deposits sat above the FDIC insurance cap, raising the specter of missed payroll at thousands of startups. Over the weekend, the Treasury, Fed, and FDIC invoked a systemic-risk exception and guaranteed all deposits, averting catastrophe. First Citizens later bought the bulk of SVB's assets.

The psychological damage proved permanent. Founders diversified treasuries into systemically important banks, and the intimate, relationship-driven model of tech-focused regional banking never fully recovered.