Fear trickled through the bank sector following the collapse of Silicon Valley Bank and Signature Bank last week, prompting major federal intervention over the weekend to backstop uninsured deposits at Silicon Valley Bank in a bid to halt panic.

Silicon Valley Bank's collapse in particular marked the most significant banking failure in the United States since Washington Mutual faltered in 2008. More broadly, blowback from the cratering of the two banks could wreak havoc across the economy, a fate government authorities are desperate to avert.

SILICON VALLEY BANK COLLAPSE: U.S. OFFICIALS REPORTEDLY WEIGH BACKSTOPPING DEPOSITORS

Here's everything you may have missed about the banking meltdown.

Silicon Valley Bank’s history

Silicon Valley Bank was founded in the 1980s and helped fund tech startups across the country. The company was catapulted to riches during the coronavirus pandemic, which ushered in a tech boom. Silicon Valley Bank's securities portfolio shot up from about $27 billion in the first quarter of 2020 to roughly $127 billion by the end of 2021.

For comparison, that 100% jump massively outpaced the 24% increase JPMorgan Chase experienced during the same time frame, Bloomberg reported. Many of Silicon Valley Bank's investments featured treasuries, or government debt, which have historically been viewed as safe assets.

Easy money policies coupled with pandemic-induced supply chain snares then led to inflation, according to many economists. As a result, the Federal Reserve began jacking up interest rates, which eroded the value of many of Silicon Valley Bank's assets.

This is because higher rates meant that new bonds and treasuries earned more for investors than older ones. As a result, the older assets that Silicon Valley Bank stockpiled became less desirable and therefore shed value.

Around the time that the Fed began tightening monetary policy, Silicon Valley began enduring a squeeze that led to belt-tightening and layoffs across the industry, contributing to Silicon Valley Bank's woes.

Last week's fever pitch

Against the backdrop of soaring interest rates and a tech bust, Silicon Valley Bank consistently downplayed risks to its underlying businesses throughout the last several months.

“We continue to see strength in our underlying business,” CEO Greg Becker said in January.

Despite the happy talk, Silicon Valley Bank's bond sheet began falling underwater. This prompted them to sell $21 billion in bonds, cementing $1.8 billion in previously unrealized losses. The company announced some of those sales last Wednesday, with plans to seek $2.25 billion in additional equity to bolster its balance sheet.

Those revelations sparked a frenzy. Venture capital firms reportedly began advising clients to pull their money from Silicon Valley Bank, whose stock was thrust into a free fall. One of the notable actors to pull out was billionaire Peter Thiel’s Founders Fund.

On Thursday, customers withdrew $42 billion in a single day. For comparison, Washington Mutual "lost $16 billion over 10 days" during the financial crisis of 2008, according to Sen. Mark Warner (D-VA).

Silicon Valley Bank touted a balance sheet with $209 billion in assets and was the 16th largest federally insured bank in the U.S.

By the end of the day Thursday, Silicon Valley Bank had a $958 million negative cash balance, and its stock price had fallen about 60%. The following day, California regulators stepped in, shuttering the bank and putting it in receivership under the Federal Deposit Insurance Corporation. Trading in Silicon Valley Bank shares was also halted.

Authorities quickly began searching for a buyer and began auctioning the bank over the weekend while searching for a solution to the crisis.

No bailouts

Treasury Secretary Janet Yellen appeared to rule out a bailout of Silicon Valley Bank on Sunday. Top of mind was the Troubled Assets Relief Program worth about $700 billion that bailed out a slew of banks and other institutions during the thick of the Great Recession of 2008.

"Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out," Yellen told CBS. "The reforms that have been put in place mean we are not going to do that again."

In the aftermath of the Great Recession, Congress passed the Dodd-Frank Act, which imposed a new regulatory regime on financial institutions, including stress tests and strengthened liquidity requirements for financial institutions. Many of those requirements were rolled back for midsized banks like Silicon Valley Bank in 2018 during the Trump administration.

Despite widespread resistance to bailouts, politicians and officials signaled that they wanted to protect those who deposited in Silicon Valley Bank. Under FDIC policy, deposits of up to $250,000 are insured, but Silicon Valley Bank was rife with deposits that exceeded that threshold.

Stopping the spread

Officials at the Treasury Department, the Fed, and the FDIC huddled over the weekend to chart out a plan to remedy the growing crisis. By late Sunday, officials from all three institutions announced that all deposits at Silicon Valley Bank would be available money, backstopping them.

Simultaneously, the Fed announced plans to offer banks a separate facility to help them meet depositor withdrawals Sunday. Under the mechanism, banks can take heavily collateralized loans to up their cash to meet service requirements for withdrawals and other needs.

Underlying those moves is fear of contagion and that the Silicon Valley Bank meltdown could spread across the banking sector and create another financial crisis.

Signature Bank falters

In tandem with Silicon Valley Bank's implosion, Signature Bank was closed by New York regulators on Sunday, marking the third-largest failure in recent history after Washington Mutual in 2008 and Silicon Valley Bank. The company had been flailing since last week. It had roughly $110 billion in assets by the end of last year and nearly $88 billion in deposits by that time, per New York's Department of Financial Services.

About 89.7% of those deposits on its books were not insured by the FDIC. The bank was involved in a range of businesses, including real estate and cryptocurrency. By September, nearly a quarter of its deposits stemmed from cryptocurrency, Reuters reported.

Similar to Silicon Valley Bank, many of Signature Bank's assets shed value as interest rates spiked. Authorities at the Treasury, Fed, and FDIC declared that as with those at Silicon Valley Bank, deposits at Signature Bank will be available Monday.

$620 billion hole

Since the fallout from Silicon Valley Bank and Signature Bank, attention has turned to a roughly $620 billion hole in the banking system. Banks were sitting on $620 billion in unrealized potential losses by the end of last year, according to the FDIC.

In other words, there is a massive disparity between assets owned by these banks and their value on the open market. The phenomenon that afflicted Silicon Valley Bank when soaring interest rates evaporated value from its assets also extends to other institutions, posing considerable risks to the system.

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Ramifications from Silicon Valley Bank's and Signature Bank's meltdowns loom large over the Fed's meeting next week, when it is expected to decide whether or not to increase interest rates. The debacle could be a harbinger of what's to come for the banking system.

"More banks will likely fail despite the intervention, but we now have a clear roadmap for how the gov’t will manage them. Bank boards and managements have received a massive wake up call," Pershing Square Capital Management founder Bill Ackman recently warned.