Silicon Valley Bank collapse: Here's how and why it happened

A bank run dealt a lethal blow to Silicon Valley Bank Friday, forcing its failure after the US Federal Reserve raised interest rates, scaring away potential investors from the financial institution best known for its relationships with high-flying world technology startups and venture capital.

Its downfall is the largest failure of a US-based financial institution since Washington Mutual collapsed at the height of the financial crisis in 2008. 

Here's what to know about why the bank failed, who was affected most, and how it may or may not affect the wider banking system in the US and worldwide.

Silicon Valley Bank was hit hard by the downturn in technology stocks over the past year as well as the Federal Reserve's aggressive plan to increase interest rates to combat inflation.

The bank bought billions of dollars worth of bonds over the past couple of years, using customers' deposits as a typical bank would normally operate. 

These investments are typically safe, but the value of those investments fell because they paid lower interest rates than what a comparable bond would pay if issued in today's higher interest rate environment.

Usually, that's not an issue because banks hold onto those for a long time — unless they have to sell them in an emergency.

But Silicon Valley's customers were largely startups and other tech-centric companies that started becoming needier for cash over the past year. 

Venture capital funding was drying up; companies were not able to get additional rounds of funding for unprofitable businesses and therefore had to tap their existing funds — often deposited with Silicon Valley Bank, which sat in the centre of the tech startup universe.

So, Silicon Valley customers started withdrawing their deposits. 

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