The Untold Story of Silicon Valley Bank's 36-Hour Collapse: What Went Wrong With SVB

#siliconvalleybank #siliconvalley #svb #collapse The 16th-largest lender in America and the home of tech startups, Silicon Valley Bank, collapsed on March 10th, making it the biggest lender to do so since the global financial crisis. Many of its deposits were larger than the $250k threshold covered by federal insurance, and regulators intervened to lessen the effects. however it has revealed several significant weaknesses in the structure of American finance. Let's now observe what occurred and what might occur in the future. All of these clients are commercial clients, which means that they are all covered by Deposit Insurance, a programme that guards depositors from losses in the event that their bank fails. Silicon Valley Bank primarily serves the tech industry, and over the past three years the industry has been booming. They have raised a lot of money for venture capital, and they were all banking with Silicon Valley Bank. The fact that Silicon Valley is submerged in a massive pot of deposits from these tech firms over the previous three years, but it had difficulty lending to those same firms, so it used those deposits to purchase a large number of Treasury Securities, which are debt securities issued by the American government, as well as mortgage-backed securities. Because those assets were extremely vulnerable to rising interest rates, Earth's interest rates increased as a result. All of Silicon Valley Bank's customers had a real incentive to flee and remove their assets from the bank as quickly as they could when they realised the value of its assets had dropped and that it might be insolvent, and that is exactly what happened when the Treasury announced that all depositors in Silicon Valley Bank had lost their money. This is a new intervention that the Treasury has never made in one of these bank failures, and at the same time the Federal Reserve launched a new lending facility that would allow banks to post good high quality assets like treasuries like IOUs. Another bank called Signature that also failed were going to be made whole, so even the uninsured deposits that companies are placed with Silicon Valley Bank and Signature Bank were going to be redeemable in full. This episode brings up two significant issues with the financial system. The first is whether the regulatory framework that banks currently operate under is appropriate Silicon Valley Bank and other banks of its size were exempted from many of the regulations implemented in the wake of the financial crisis, in part because it was believed that their failure wouldn't pose a systemic risk to the financial system. but as we've seen The second major question is whether we will experience issues with the financial system in general. When there was a run on a bank as large as Silicon Valley Bank, this quickly sparked fears of runs at other institutions, suggesting that there were systemic risks associated with the bank of that side is failing. Perhaps those thresholds need to be rethought. As interest rates have risen, you've seen financial institutions in the most dynamic sectors of the economy, including crypto with the collapse of FTX and now tech with the collapse of Silicon Valley Bank. However, it's unclear whether the full impact of rising interest rates has rippled through the entire financial system and revealed all the institutions that might be struggling with the consequences. thank you so much for watching and don't forget to subscribe! #usa #usanewstoday #usanews #wsj #economists #financial #thefinancial #worldeconomy #worldeconomy #investing #bankcollapse #economiccrisis