What the heck happened to SVB?!? — Ian Kay // Fifth Third Bank

Show Notes

• 02:49
  Silicon Valley Banks (SVB) business model and background

  SVB focused on providing funding and debt facilities to startups in the tech sector. They experienced significant growth over the past decade, largely due to these large deposits from startups, and invested these deposits in treasury and mortgage-backed securities in 2019.
• 05:58
  SVB's investment losses and efforts to absorb them

  SVB invested a significant portion of its deposits in treasuries and mortgage-backed securities in 2019. As interest rates skyrocketed, these assets became devalued, and SVB sold the assets at a loss and tried to sell equity from the company to rectify the issue.
• 08:08
  What led to SVBs downfall

  SVB's realized loss of $2 billion from selling their devalued assets flipped their assets and liabilities, making them technically insolvent and killing their equity value. As a result, the VCs panicked and pulled out their deposits, ultimately leading to the downfall of the bank.
• 10:09
  What SVB could have done to avoid its downfall

  The combination of SVB buying bonds in 2019 and not responding to rising interest rates in a timely manner, along with panic among VCs, caused the downfall of the bank. If SVB had acted earlier instead of all at once, they could have avoided the situation and still been in business.
• 11:21
  FDIC guarantee and government assistance for SVB deposit protection

  SVB did not receive a bailout from the government but rather received assistance through lines of credit and support from the FDIC. The FDIC's main goal was to back depositors, which they successfully did, but shareholders and bondholders of the bank will still face losses.
• 12:40
  Why the government assistance received by SVB is not a bailout

  SVB is not getting a bailout from the government, but instead is breaking apart and selling the bank's assets to recoup some of the losses. The funds to back depositors and pay back loans arent coming from taxes but from the Fed's line of credit for these situations.
• 14:40
  The difference between SVBs situation and the 2008 financial crisis

  The current situation with Silicon Valley Bank (SVB) is different from the 2008 financial crisis as it is not a credit problem with customers defaulting on loans. Instead, its a self-inflicted liquidity issue due to poor risk management of deposits.
• 15:14
  Who is at fault for the SVBs mismanagement of deposits

  Every bank has a CRO or Treasurer whose job it is to take deposits and invest them to make net interest margin. In this case, the C-Suite failed to properly manage the investments of the bank's deposits, leading to a liquidity crunch.