What happened?

Silicon Valley Bank (SVB) is a California-based bank that had considerable exposure to the venture capital, or VC, industry. Over the past two years, the bank’s balance sheet expanded rapidly. VC companies had deposited cash with the bank, which then bought government bonds and mortgage-backed securities with that cash. Loan demand was not strong. So the bank invested in financial instruments instead of lending. 


Problems arose when the VC firms recently asked for their deposits back because of cash-flow problems and the challenges faced by the technology industry in the past six months. To refund deposits, SVB was forced to sell some bond holdings. Due to the decline in bond values in the past 12 months, these sales resulted in a US$1.5 billion loss on those investments. On Thursday, when this loss was revealed, SVB’s stock price fell 60% as the bank tried to raise capital to cover those losses. The stock fell another 60% on Friday before the company stock was suspended from trading and regulators and the Federal Deposit Insurance Company (FDIC) closed the bank. This is the largest bank failure in the world since 2008. 

What happens next?

The FDIC insures deposits up to a maximum of US$250,000 per depositor. In a move designed to protect confidence in the country’s financial institutions, the government announced that all deposits with SVB will be guaranteed regardless of dollar value. The announcement means depositors will now be able to access all of their funds. Given most of SVB’s clients are companies, this alleviates concerns of short-term funding for these businesses. 

Does CFS have any exposure to SVB?

CFS products have immaterial exposure to SVB. The Lifestage investment option has a small exposure to SVB through BlackRock, which runs a quantitative strategy. This exposure is not large enough to have a material impact on performance.

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Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (AIL) is the trustee of the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557 and issuer of FirstChoice range of super and pension products. Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (CFSIL) is the responsible entity and issuer of products made available under FirstChoice Investments and FirstChoice Wholesale Investments.


Information on this webpage is provided by AIL and CFSIL. It may include general advice but does not consider your individual objectives, financial situation, needs or tax circumstances. You can find the target market determinations (TMD) for our financial products at  https://www.cfs.com.au/tmd which include a description of who a financial product might suit. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) carefully, assess whether the information is appropriate for you, and consider talking to a financial adviser before making an investment decision. You can get the PDS and FSG at www.cfs.com.au or by calling us on 13 13 36.