Silicon Valley Bank Collapse: Risk Lessons for Small Firms

Silicon Valley Bank was closed by California regulators on March 10, 2023, after a rapid deposit run, and its deposits and loans were later sold to First-Citizens Bank. For small businesses, the lesson is practical: know your deposit insurance limits, avoid keeping all operating cash and payroll funding at one bank, and have a written plan for losing bank access.

Key takeaways

  • SVB failed after heavy, concentrated, largely uninsured deposits left very quickly.
  • FDIC insurance covers $250,000 per depositor, per insured bank, for each ownership category.
  • Many affected companies worried most about making payroll in the days after the closure.
  • A simple treasury policy and a backup bank account reduce most of the risk.

What happened to Silicon Valley Bank?

On Friday, March 10, 2023, the California Department of Financial Protection and Innovation closed Silicon Valley Bank and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. The FDIC transferred all deposits, insured and uninsured, and substantially all assets to a newly created Silicon Valley Bridge Bank, which reopened on Monday, March 13, 2023.

The FDIC then agreed to sell all deposits and loans of the bridge bank to First-Citizens Bank and Trust Company of Raleigh, North Carolina. The former SVB branches opened as First Citizens locations on March 27, 2023. According to the FDIC, the bridge bank held about $167 billion in assets and $119 billion in deposits as of March 10, and the FDIC estimated the failure would cost the Deposit Insurance Fund about $20 billion.

On April 28, 2023, the Federal Reserve released a review led by Vice Chair for Supervision Michael Barr. It found that SVB's board and management did not adequately manage the bank's risks, and that supervisors did not fully recognize the vulnerabilities or act quickly enough once they identified them.

Why does this matter for small businesses?

SVB served many startups and venture-backed companies, and many kept balances far above the insured limit. When the bank closed, finance teams faced immediate questions: Can we make payroll? Will vendor payments clear? Can we access any credit lines? Even though depositors ultimately kept access to their funds, the episode showed how quickly a single banking relationship can become a single point of failure.

Deposit insurance is the first line of defense. The FDIC states that the standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. For background on how that system works, see our explainer on the FDIC and its role in protecting bank deposits.

Which risk management controls should a small business have?

Most small businesses do not need a treasury department. They need a short written policy and a few habits. Use this checklist:

RiskControlOwner
Uninsured depositsKnow which balances exceed FDIC limits; spread funds across banks or ownership categories where sensibleOwner or CFO
Single bank dependenceOpen and test a secondary operating account at an unrelated bankFinance lead
Payroll disruptionConfirm with your payroll provider how to switch the funding account and how long it takesHR or payroll lead
Credit accessAvoid having your only credit line at the same bank as all depositsOwner or CFO
Cash runwayForecast 13 weeks of cash and review it monthlyFinance lead
Bank healthReview your bank's public financial reports and news periodicallyOwner or CFO

Protect payroll first

Payroll is the obligation employees feel immediately, and late wages can create legal exposure under state wage payment laws. Document which account funds payroll, who can change it, and the cut-off times your payroll provider uses. Keep enough in a backup account to cover at least one payroll cycle and the related payroll tax deposits.

Plan cash flow, not just balances

A business with healthy revenue can still be stuck if collections land in an inaccessible account. Map inflows (customer payments, card processor settlements) and outflows (rent, payroll, suppliers) to specific accounts. Our guide to managing cash flow for small businesses walks through a simple forecast.

Treat banking like any other operational risk

Bank failure belongs on the same risk register as cyber incidents, key-person loss and supplier failure. Review your insurance and contracts too; our overview of cyber insurance for small businesses shows how to think about coverage for disruption you cannot fully prevent.

Frequently Asked Questions

Did SVB depositors lose their money?

No. Regulators transferred all deposits, including uninsured balances, to the FDIC-run bridge bank, which reopened on March 13, 2023. Those deposits later moved to First-Citizens Bank. Shareholders and some creditors of the holding company were treated differently. The outcome relied on extraordinary government action, so businesses should not assume the same in future failures.

How can a small business get more than $250,000 of FDIC coverage?

Coverage applies per depositor, per insured bank, per ownership category, so using accounts at more than one insured bank increases total coverage. Some banks also offer deposit placement networks that spread funds across member banks. Confirm details directly with the FDIC's resources and your bank before relying on any arrangement.

What should we do on the day our bank fails?

Check official FDIC notices for your bank, confirm whether accounts are accessible, and contact your payroll provider to verify the next payroll's funding. Activate your backup account for urgent payments, tell key vendors and employees what is happening, and keep records of all payments in flight for reconciliation.

Next steps

  1. List every business account, its balance and whether it exceeds FDIC limits.
  2. Open or test a secondary operating account at a different bank.
  3. Agree with your payroll provider how to switch funding accounts quickly.
  4. Build a 13-week cash forecast and put bank risk on your risk register.

Last reviewed: October 2026.

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