Tales & Trails of a Traveling Wiseguy

I noted that SIVB stock plunged 85% on Thursday. Some people might wonder why that's important as stock price movements usually don't impact company operations. Remember, buying a stock doesn't mean you're paying the company money; it means you're paying another stockholder money. In this case, though, the stock price plunge was critical.

SVB was trying to raise money to cover losses by selling new shares of stock. As the market value per share plunged, SVB's planned sale would yield less and less. Or they'd have to sell even more new shares, diluting existing shareholders worse, to raise funds. This created a vicious downward cycle. Ultimately— and within the space of just a day— their plan to sell new shares became completely untenable.

The collapse of SVB's secondary stock offering left them with no means to cover depositors' demands for withdrawals, which were spiking up as a result of fear of loss. That's the classic run-on-the-bank scenario. Regulators took over Friday morning to prevent further destructive chaos.