🫵 What Silicon Valley Bank’s collapse means for you

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Today's big stories

Silicon Valley Bank bit the dust
Here’s how things went so very wrong at Silicon Valley Bank – Read Now
US jobs beat expectations – for the eleventh time in a row

Byte The Bullet

What’s Going On Here?

Silicon Valley Bank (SVB) collapsed late last week.

What Does This Mean?

SVB is a heavyweight in the US startup arena, with almost half the country's venture-backed tech and life sciences startups among its clientele. But lately those businesses have been burning through cash reserves in order to stay afloat – and that means SVB’s once-brimming deposit pool evaporated to little more than a puddle. The bank responded to that problem with the bright idea of selling off some bonds to raise cash: problem is, SVB bought those bonds when tech was at its height, and their value’s plummeted as interest rates have climbed. The end result, then, was a sizable loss for SVB. That sparked worries the bank was running out of cash – sending shares plummeting – and when a share sale intended to fix the balance sheet failed, SVB wound up in regulators’ hands.

Why Should I Care?

Zooming in: A run for their money.
Even if it had somehow managed to raise the cash, the writing was probably already on the wall for SVB: the initial loss had spooked clients, with VC firms advising companies to consider withdrawing cash from the lender. And remember “It’s A Wonderful Life”? When anxious customers all try to pull their cash at the same time, you’ve got a classic bank run on your hands. All said, then, SVB’s wound up as the US’s second-biggest bank failure ever.

The bigger picture: Safety in size.
The whole debacle caused a ripple effect in finance, with the four biggest US banks collectively shedding over $50 billion in market value on Thursday. After all, the US banking industry has over $600 billion in so-called paper losses – ones that only materialize when sold, like SVB's bonds. But America's top banks aren't really expected to go belly up: proportionately, they’ve got a whole lot less bound up in similar, troublesome investments, and that means that they’re much safer.

You might also like: The hows, whys, and “huh?”s of investing in financial services stocks.

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Analyst Take

Here’s What We Know About Silicon Valley Bank’s Swift And Stunning Collapse

By Paul Allison, Analyst

Let’s take a closer look at how Silicon Valley Bank (SVB) wound up as the second-biggest US bank failure in history.

The Federal Deposit Insurance Corporation closed SVB’s doors after a dramatic few days that saw the bank’s startup-heavy customers rush to pull their deposits, as rumors swirled that the institution was struggling to meet the mounting cash calls.

It all happened so quickly, and seemingly so easily, that investors are rightly asking whether this sort of thing could happen to a bigger, more important US bank – or even a string of them.

That’s today’s Insight: what you need to know now about Silicon Valley Bank.

Read or listen to the Insight here

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