Our recent posts investigated the failure of Silicon Valley Bank (SVB) and the response of regulators. Here, we provide some data on U.S. banks and bank failures to place SVB in perspective.
How big was SVB?
SVB’s total assets at the end of 2022 were $209 billion, which is 0.96 percent of the total assets of the nation’s 2,124 banks. SVB was the sixteenth largest bank, and Figure 1 shows its size compared with the fifteen larger banks.
Although there are four very large banks, much larger than the fifth, the U.S. banking market is highly competitive, with a four-firm concentration ratio of 42 and a Herfindahl-Hirschman Index (HHI) of 522.
How common and how contagious is bank failure?
Between October 2000 and March 2023, a total of 565 U.S. banks failed, an average of 25 banks per year. But there are no average years. In 2008 through 2012, 465 banks failed. These were years dominated by the Global Financial Crisis (GFC), a period of extreme stress in global financial markets and banking systems that started in 2007 and peaked in 2009. The GFC was caused by falling U.S. house prices, which triggered defaults on home loans (mortgages), and a crash in the value of mortgage-backed securities held by banks.
Normal years have few or no bank failures.
So, in normal times, bank failure is rare. The failure of SVB is only the fifth in the 2020s—four in 2020 and none in 2021 and 2022.
Also, in normal times, bank failure is not contagious. Only a large common shock brings a large number of failures.
Figure 2 shows the distribution of failures from 2001 through 2023.
What happens to a failed bank?
Normally when a bank fails, the Federal Deposit Insurance Corporation (FDIC) takes control of it, pays the insured depositors (balances up to $250,0000), and sells it to the highest bidder. Of the 565 banks that have failed since 2000, only 17 found no buyer. The remaining 548 were acquired by another bank and absorbed into its operations. For some banks, their business model is to grow by acquisition of other banks.
Figure 3 shows the number of failed banks, acquired banks, and acquiring banks from 2000 through 2023.
What happened to SVB?
When SVB failed, the FDIC created a “bridge bank” and transferred all SVB deposits and almost all the assets of its U.S. operations to the new bank. The FDIC will manage the bridge bank until it finds a buyer.
The United Kingdom subsidiary of SVB, Silicon Valley Bank (UK) Ltd, was sold to HSBC (Hong Kong and Shanghai Banking Corporation) for £1.00 ($1.23).
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