Answer: at an ELI5 level, Silicon Valley Bank (SVB) is a bank that focuses on providing services to startups and entrepreneurs. Many companies use it to hold funds that they receive from venture capitalists.
In 2021, the market was soaring and startups were getting tons of money. They put this money in SVB, which went from holding $61.76bn at the end of 2019 to $189.20bn at the end of 2021.
Banks normally make money by loaning out a portion of the money they hold, but SVB was getting so much money that they couldn't loan out fast enough. So instead, they bought a bunch of long term investments, the majority of which will mature in 10+ years.
This would be okay except that when the fed started raising interest rates last year, the value of these long term assets fell hard. Simultaneously, tech and startups also started to struggle with the rate hikes (see: all the big layoffs) and pull from their deposits more quickly. By the end of 2022 deposits were down to $161 billion.
Yesterday SVB announced a fire sale: they sold pretty much everything they could sell in order to raise cash and balance out all those long term assets and improve financial health metrics. They sold over 21 billion worth of investments and are trying to raise 3 billion more.
Investors and Venture Capitalists were shocked and concerned about why they had to do this and why they had to do it now. Some VCs told their startups to pull their money out of SVB or to keep no more than 250k in the bank (which is how much is insured by the FDIC).
This has raised concerns of starting a run on the bank. SVB is theoretically fine right now, but if all of these startups try to pull their money out they won't be.
Edit to update with what happened this morning:
SVB is clearly not fine anymore; in fact, regulators ordered them to close this morning. It appears the bank run was very, very fast and overwhelmed them quickly. Shareholders will get nothing.
Its size makes it the second largest bank to ever fail, the first being Washington Mutual which collapsed in 2008.
Deposits insured by the FDIC will get their money back Monday morning, but as of their last filing 93% of the bank's $161 billion deposits were uninsured. However, based on SVB's liquidation plan, it is likely that all deposits will be returned eventually (probably next week).
Companies who banked with SVB are struggling to pay their employees today. Notably, Rippling (a company that manages payroll and HR services for other companies) has said that their payments flow through SVB, so any company that uses Rippling will probably have a delay in payment.
Are any other banks at risk? It's hard to say. The crux of the issue is that SVB sold their "available for sale" (AFS) portfolio to raise liquidity but had major unrealized losses in their "hold to market" (HTM) long term port that they really, really did not want to realize. They aren't the only ones; in total, as of the end of 2022, banks held about $620b of unrealized losses in their AFS and HTM ports.
Most larger banks have relatively smaller amounts of unrealized losses, but smaller regional banks may be at risk which is why $KRE (an ETF of regional banks) has dropped so much.
