Katie Porter Explains What Happened With Silicon Valley Bank

In an email to supporters, California Congresswoman and US Senate candidate Katie Porter provided a helpful explainer on the Silicon Valley Bank situation:

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As a consumer protection attorney who has spent my career taking on Wall Street, I wanted to help break down what’s happening with Silicon Valley Bank.

Silicon Valley Bank is a well established bank that has been really important in lending to technology companies. During the pandemic, the bank grew rapidly in size. As banks do, it turned around and invested that money. But they were investing in U.S. treasury bonds, which take years to reach their full value.

The problem for Silicon Valley Bank? Interest rates have gone up, so venture capitalists are moving their money now to get more bang for their buck. And as of Friday, Silicon Valley Bank didn't have enough liquid cash (i.e. capital) to return people’s deposits—leading to its collapse.

There are some real oversight questions about why the bank wasn’t prepared, but the blame isn’t all on them. Congress played a real role in this debacle.

After the 2008 financial crisis, Congress passed legislation to require banks to hold onto more liquid cash. This thicker cushion lowered the risk for consumers—but it wasn’t ideal for the banks, which want to invest as much as possible to earn more profit.

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