Silicon Valley Bank had a run on its deposits and simply ran out of money….
The Federal Deposit Insurance Corporation. has taken over the bank and will cover accounts UNDER $250,000….
Those over that will have to wait in line…..
The FDIC has moved the assets into a new National Bank of Santa Clara…..
The Fed’s will handle this for some ….
It HAS sent a shot of worry thru the bank investor’s….
Higher interest rates from the Fed contributed to the situation…
Flush with cash from high-flying start-ups, it bought huge amounts of bonds more than a year ago, just before the Federal Reserve began to raise interest rates. Like its peers, Silicon Valley Bank kept just a fraction of the deposits on hand and invested the rest with the hope of earning a return.
In particular, the bank put customer deposits into long-dated Treasury bonds and mortgage bonds which, while interest rates were low, promised modest, steady returns.
That had worked well for years. The bank’s deposits doubled to $102 billion at the end of 2020 from $49 billion in 2018. One year later, in 2021, its coffers were at $189.2 billion as start-ups and technology companies enjoyed heady profits during the pandemic.
When the Federal Reserve began raising rates last year, however, those holdings became less attractive because newer government bonds paid more in interest. That might not have mattered so long as the bank’s clients didn’t ask for their money back.
But at the same time as interest rates were rising, the environment for start-up funding dried up, putting pressure on the bank’s clients — who then began to withdraw their money. To pay those redemption requests, Silicon Valley Bank had to sell off some of its investments at exactly the wrong time. In its surprise disclosure on Wednesday, the bank admitted that it had lost nearly $2 billion when it was all but forced sell some of its holdings.
The upheaval raised uncomfortable parallels to the 2008 financial crisis — the last time a bank of this magnitude unraveled. Then, as now, what had seemed to be a hot economy suddenly cooled, pressuring banks….
Banks do NOT have to hold every dollar deposited…
One hopes we do NOT see 2008/2009 bank runs again…..
CNBC says the bank was ‘short’ assetss by 87%…..
Most banks are at 41%….
CNBC’s people are talking a lower Fed interest hike or NONE…..
There is a sell off beginning in tech companies this afternoon ….
There IS a mention of some people NOT getting paid…..
This is the second bank failure this week….
The worry is about MORE bank ‘runs’…..
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