![]() ![]() As the bank ran low on cash, it announced plans to raise more, and a bunch of influential people in Silicon Valley panicked, withdrawing their money en masse in a classic bank run. So when SVB’s depositors began drawing down their balances this year to meet business expenses, the bank was forced to dump its bonds at fire-sale prices to obtain the cash it needed to meet customer withdrawals. When the Fed raised interest rates, those bonds became less attractive on the open market-newer bonds came with higher payouts, making SVB’s older bonds harder to sell off in a pinch. The bank bought up a ton of long-term Treasury bonds and mortgage securities when interest rates were low over the past few years. ![]() The mechanics of SVB’s collapse are relatively straightforward. Hailing “SVB’s deep understanding of the markets it serves, our strong risk management practices, and the fundamental strength of the innovation economy,” Becker declared that, “SVB, like our mid-sized bank peers, does not present systemic risk.” 114) feels destined for the corporate hubris canon. Becker’s testimony to the Senate Banking Committee ( see p. What’s worse, many of these guys-including SVB Bank CEO Greg Becker-lobbied Congress to eliminate tougher capital and liquidity regulations for banks like SVB, and got what they wanted. Tough-talking tech dudes who spent years celebrating the genius of free markets totally lost their minds in a bank panic, failed to coordinate a private rescue of their own sector, and then went whining to the federal government for a bailout. It’s hard to imagine a deeper embarrassment for Silicon Valley. Its demise is the immediate product of horrendous risk management by the bank’s officers-but there are also important public policy failures here, particularly the Fed’s high-interest rate policy and a reckless, bipartisan bank deregulation law signed by President Donald Trump in 2018. SVB works hand-in-glove with venture capital firms, tech start-ups, and a lot of very rich people in California, claiming nearly half of all VC-backed tech companies and over 2,500 VCs as its clients. The nexus of this breakdown is Silicon Valley Bank, a firm with $209 billion in assets as of December 31, 2022. As with any financial crash, it’s impossible to predict where exactly the money will flow next, but it’s clear that the tech sector that reshaped American business and culture in the 21st century is coming apart. The most important bank in Silicon Valley failed on Friday, prompting a Sunday night bailout for some of the wealthiest people in the world as the Federal Reserve opened a new emergency lending program hoping to prevent the crisis in California from triggering a nationwide banking collapse. ![]()
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