The collapse of Silicon Valley Bank set off a maelstrom of panic, blame, good intentions and greed, followed finally by salvation for depositors. But how did this historic collapse even happen?

Silicon Valley

Three U.S banks including the Silicon Valley Bank have failed and Credit Suisse has been handed emergency funding amid the biggest crisis since 2008.

Banking Crisis

In Depth: What led to the Silicon Valley Bank collapse

I'm confident I got the best bank CEO job in the world and maybe one of the best CDL jobs. Federal Regulators seized control the lender as it stood on the brink of collapse. So how do we get from this to didn't? Silicon Valley Bank with the US has 16th largest made with about two hundred and twelve billion dollars in assets. It was a fraction the size of JPMorgan. Chase the biggest lender, but I had an outsize influence in Tech, which is 10% of the US economy. Let's go back to how it all started. Seb was founded back in 1983 by three businessmen. The founding myth is that the idea came up during a poker game but that's only half of the story. Medeiros one of the co-founders was teaching a class at Jefferson and one question kept coming up. A lot of them came and wondered how they could get financing from Banks because they just weren't did it. If you had an idea, is a venture capitalist world around you. I got the idea that maybe just maybe after the Reagan came in and seized up the regulatory structure that there could be a financial institution, very outset Silicon Valley Bank intended to work with companies who might otherwise struggle with established lenders, like a Wells Fargo or Bank of America. People here in the valley understand if somebody's got a product, then products outdated, the company goes out of business, they don't realize the R&D that goes into the next product into and the intellectual properties. That was huge for the tech industry back. Then, Silicon Valley was mostly about Hardware, think makers of silicon chips and early PCS like intelligent Packard. But sap was part of a new wave of investing, rather than focusing on how profitable a firm is Tech investors. Instead open prioritize, tell fastest-growing they assumed sometimes naively that at a certain point, the company will stop reinvesting, its earnings and things like why are new customers? And instead become profitable Flash Forward, a few decades and Sav is riding the coattails of a booming Venture Capital industry that it helped to facilitate Venture investment approach. The 330 billion dollars in 2021, nearly doubling from a year earlier. At this point, I say be like to say that it was doing business with about half of all venture back to test and Healthcare startups in the US, but doesn't have some exposure to Junior type Banks, like to ask, Phoebe and signature in a whole host of other since become part of the fabric of the of the Venture Community from 17 billion dollars in deposits, in 2011, to 189 billion, a decade later faster than anything and it wasn't even a member of the index money by taking and deposits and letting them out at higher rates as well as investing them. And typically government bonds, like, treasuries rank among the safest Investments out there so the banks house tens of billions of dollars into them. Long-term government debt, didn't generate much interest for yield, and as long as interest rates stay low pretty key detail, here, they wouldn't lose their value. The company was aware of the risk. In late 2020, the bank's asset liability committee. Received an internal recommendation that it should invest new deposits in lower yelling. Short-term Bond. Just in case interest rates increased but that would have cost millions and Executives frowned on the idea. Instead, they continue to invest in the higher yield bonds. 3D, obama-biden ministration. We put in place tough requirements on banks, like Silicon Valley Bank, and Signature Bank, including the Dodd-Frank law to make sure that the crisis we saw in 2008 would not happen again. Unfortunately, the last Administration roll back some of these requirements. Other Regional Banks push for deregulation. They got what they wanted the strict rules introduced after. The great financial crisis would only be reserved for the megabanks, Silicon Valley Bank to invest into trees without a lot of government oversight, which was okay until inflation. Started picking up my finally got the First Fed rate hike of this cycle and seven hikes for this year, lightning cycle. It's not going to have any effect on the real economy. Aggressive interest rate hike campaign ever raising its Benchmark rate seven times last year. That changed everything and it created two big problems for fbb. First became a lot harder for startups to raise money. So those that weren't already profitable the same company for which the bank had been sounded, became more likely to draw down to existing funds prompting as a visa to drop by 16 billion dollars in 2022. That was a most on record, s the value of stbs bond Investments declined. Also by 16 billion dollars, because investors can now buy bonds with higher yields. Those with a low-yield were less valuable. That doesn't matter. Much of clients keep their money in the bank, but a lot of them were pulling it out. The issue. Problems combined net losses that were purely theoretical. We're becoming all too real. In a worst-case scenario sap wouldn't have enough money to cover everyone suppositories On March 8th and made an announcement that shocked, the market it's old 21 billion dollars of its assets, including a lot of that government debt essentially to make sure it gets fund, all those withdrawals and they did. So at a loss of 1.8 billion dollars to put the Gap, it was looking to raise more Capital by selling billions of dollars of shares that sparked the Panic, be Financial Group today and shares plunging. The most in more than two decades after the parent of Silicon, Valley Bank announcing the stock offering and well getting rid of something good on his balance. With a lot of concern out there right now with a digital twist lines, were forming around the block. Founders iPhone split up with text, urging them to go. Run for the exits, pouring fuel on the fire. On March 9th, depositors try to pull 42 billion dollars from Silicon Valley Bank equivalent to 29 billion dollars a minute. By the end of the day, the bank had a negative cash. Balance of $950, the stock tumbled, 61% that wiped out. 9.6 billion dollars of market capitalization. Big thing to remember here, the US banking system, relies on the confidence of its depositors if that disappears and everyone runs to withdraw their money. At the same time, it all falls apart so I'm trying that deposit can access your money is in the best interest of wild, really everyone government PCS employees. On payroll, the list goes on. So on Friday March 10th Regulators at the FDIC sees a business making it the biggest US lender to fail since 2008. With the banking system is safe, your deposits will be there when you need them Monday. A fixed kind of had been cobbled together a part for my deal. With HSBC to buy the bank's UK arm for nominal 1 lb about a dollar 20. No fire has yet been found but the government pledged that depositors would be made whole, even those who had more than a $250,000 limit at the bank startups around the world, breathed a sigh of relief. Yes. There were concerns that the ultimate owner of SED wouldn't be quite as willing. Work with Richard Tech startups, as its predecessor, but at least the start of had their money and that's something to be grateful for.

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Banking Crisis