[cameldrv]

If you mark the bonds to market, the bank's equity is wiped out, and logically, that's what you should do.

Given that the law allows them not to if they're HTM, you get the same result, just with some delay. Their deposits are short term, and will leave the bank if SVB is not providing competitive interest rates. They cannot afford to pay competitive interest rates if they've loaned out the deposits at a lower rate than depositors now expect.

Once depositors realize this, it's a classic bank run scenario. They know that without help, the bank goes bust, and there's no point in taking any significant risk with bank deposits that aren't even paying any interest, so they take them out. As more people withdraw, the chance of a failure increases, and more people withdraw, etc.