Скачать или смотреть Silicon Valley Bank Collapse – How A $15 Billion Dollar Bank Collapses in Hours

This video will explain why Silicon Valley Bank Collapsed, how Silicon Valley Bank failed, and how banks are being bailed out. There are a lot of aspects to Silicon Valley Bank's failure, so I've included time stamps for easy navigation:

Timestamps:
0:00 The Silicon Valley Bank Crisis
0:52 How Silicon Valley Bank Failed
9:35 The Bank Run and SVB Collapse
11:01 How Will SVB's Collapse Affect the Economy?
14:00 The Government Bailout for SVB Customers

Silicon Valley Bank just failed after a massive run on the bank and it is the largest bank failure since the 2008 financial crisis and the 2nd largest bank failure in United States history.

But in order to explain why Silicon Valley Bank failed, you first need to understand their clients. Silicon Valley Bank, also known as SVB, lived up to its namesake and was in many ways the go to bank for startup companies. Venture Capital firms and the companies in their portfolios were the vast majority of their customers and SVB even described itself as the go to bank for venture capital investors.

Back in 2021, this tech startup niche was an exciting place to be in. Investors were throwing more money at startups than ever before in hopes of hitting on the next big growth company. It was not hard for these companies to fund equity rounds because of this and they were all flush with cash. So these startups went and stuck all of their excess cash they had been raising from investors at Silicon Valley Bank as deposits.

But there was a bit of a dilemma that Silicon Valley Bank now had to face with the massive influx of customer deposits they suddenly had. SVB now had tons of cash and they needed to put that cash to work so they could make money somehow. So Silicon Valley Bank bought tons of long term treasuries in 2021 with their influx of deposits.

Things started to change in 2022 when the Federal Reserve began an aggressive rate hiking campaign to fight inflation and took the target interest rate and Federal Funds Rate up to 4.5% throughout 2022 and 2023.

This change presented a challenge for Silicon Valley Bank as its positioning made it particularly vulnerable to interest rate increases. First of all, the vast majority of SVB’s clients are unprofitable tech startup companies that don’t make enough money from operations to cover their bills. This meant that SVB was starting to experience net outflows from the bank and their deposits began to shrink throughout 2022 as customers withdrew their money from the bank to cover their expenses.

Now remember though that banks use customer deposits to invest and make money, so not all customer deposits are always held at the bank. They keep a certain percentage of cash on hand to meet withdrawals and customer needs, but the remainder of customer deposits might be invested in other assets like treasuries that Silicon Valley Bank had.

The problem is that they essentially bought most of these treasuries at the Bond Market’s top in 2021 when they paid high prices for treasuries that paid relatively low interest. Silicon Valley Bank would have to sell their older bonds at a discount to what they had originally paid for them. While SVB bought at a bad time in the bond market, they theoretically didn’t have to sell the bonds and realize the loss.

The problem is that Silicon Valley Bank was forced to sell their bonds at a loss in order to meet customer withdrawals. Their startup customers were withdrawing their deposits at a rate that Silicon Valley Bank could not meet with just the cash they had on hand, so they were forced to sell large parts of their treasury portfolio on the open market at a substantial loss in order to return customer deposits.

Silicon Valley Bank revealed this when it attempted to launch a $1.75 billion share sale to improve its balance sheet. It revealed it needed the funds to plug a $1.8 billion hole after the bank was forced to sell $21 billion from its bond portfolio at a loss. This attempt to sell shares and revelation created a panic among the bank's clients and they began to withdraw funds at an even faster rate. Notable venture capital firms even called and advised their companies to pull their funds out of the bank which effectively triggered a bank run that made it impossible for Silicon Valley Bank to cover all of the withdrawals. California regulators intervened and seized the bank and placed it under the FDIC.

It was announced that the U.S. government will be bailing out depositers at Silicon Valley Bank. The federal reserve also announced that it was creating a lending facility for the nation’s banks, designed to help guard them against any financial risks caused by Friday’s collapse of SVB. Supposedly bailing out Silicon Valley Bank depositors will not fall directly on taxpayers and will instead be backstopped by a pool of money that is regularly paid into by U.S. banks. I hope this Silicon Valley Bank Collapse explained video was helpful.

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