Here's what SVB's failure could mean.

A feature article from our U.S. partners

What happened to SVB?

Several factors led to the precipitous collapse of SVB. Most of SVB's clients include tech and venture capital companies, in addition to executives for these firms. In an effort to attract clients, SVB offered relatively higher rates on deposits compared with many larger rivals. To help fund these higher rates, SVB bought bonds in prior years when it was cash rich. But that was before the Fed began aggressively hiking rates and the venture capital market experienced some turbulence. The value of most of those bonds SVB purchased has declined substantially (bond values generally decrease as interest rates increase), resulting in big investment losses.

"This is a classic asset-liability mismatch, triggered by higher rates, and compounded by leverage," according to Jurrien Timmer, director of global macro at Fidelity. "Some banks have offered to pay higher rates to their depositors, but as the Fed has raised rates and bond values decreased, banks like SVB are taking losses on their bond assets."

Complicating the situation, SVB kept a lower level of deposits on hand and invested a greater percentage of its capital in order to try and pay its relatively higher rates. Consequently, SVB has been on looser footing than most other banks.

Additionally, some have speculated that SVB developed a reputation for having not-as-strict lending standards. It is speculated that the quality of loans to some riskier venture-backed companies with deposits at SVB has deteriorated over the past year. Many of those firms have come under significant financial pressure as rates have risen and securing capital has become more difficult compared to the low interest rate environment from just a couple of years ago.

After SVB announced recently that it lost $1.8 billion in asset sales, the bank failed to secure additional investment capital and many customers rapidly withdrew deposits. Everything culminated with Friday's seizure by regulators.

"There's an old adage that says the Fed tightens until something breaks," Timmer adds. "It looks like we have a sense of what is breaking during this Fed cycle."

What it means for investors

Obviously, investors in SVB have taken a huge hit, and regional bank stock prices were noticeably lower on Friday after news broke of SVB's failure—with some down 20% or more. But the spillover implications for other financial companies, markets, and the economy may be limited.

"In my view, this does not appear to be a situation that could become systemic, like the sub-prime mortgage collapse did in 2007."