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Special Episode: Silicon Valley Bank Crisis Explained | Can this happen in India? | SVB Bank latest
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Documentary explaining the 2008 Crisis in detail:
Please find the link to the Management Consulting Program that I personally lead at Blue Chapter! You receive personal feedback every week & work on an international live strategy project. This is not a mock project & our students proudly speak about this live experience in their interviews:)
If you are applying for fall 2023/2024 MBA programs, check out the global MBA fellowship program:
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The latest SVB or Silicon Valley Bank news is very troubling. SVB Crisis has come at a time when US citizens and people across the world are battling many macroeconomic and financial problems. SVB Bank news has caught many people off guard. Because before Silicon Valley Bank crashed, it grew 3 times from 2019 to 2022. SVB collapse has its roots in multiple problems arising out of fiscal policy and lack of diversification. In this video, I’ve explained why silicon valley bank crashed and why was silicon valley bank in trouble.
Silicon Valley Bank started in 1983 with the sole aim of supporting tech startups and technology companies in silicon valley. As of today, it supports more than 50% of the venture-backed tech startups in the US. This is the USP of SVB. Silicon Valley Bank is focused on one single ecosystem as it’s managing its $200 Billion balance sheet. Because of this while the collapse was happening, the FED didn’t even bother to look into this bank. Silicon Valley Bank is located on the west coast instead of the East Coast where most of the action happens in the USA.
During Covid, the US government rolled out stimulus packages and also printed a lot of money. Because of this, after covid, there was excess money in the market. Where did this money go? Into various bank accounts and from there it got invested in various businesses. The deposits of SVB grew from $75 Billion to $195 Billion in only 3 years. But still, the deposits in SVB grew at a much greater rate than deposits grew in other banks. The rate of average deposit growth for other banks in the US was 37% while the deposits in SVB grew by 200%. This is a massive jump for SVB.
So what triggered this collapse? First of all, SVB didn’t have a Chief Risk Officer from March 2022 to January 2023. For 10 months they didn’t have a CRO. Their CRO resigned in March 2022 and they took a long time to hire a new CRO. The deposit base of SVB was falling during this time. It came down from $195 Billion to $175 Billion in December 2022. If they had had a CRO, then that person would’ve highlighted this issue in the board meetings. Deposits were going down because there was a funding winter in which startups were not receiving money from investors. Because of this startups were withdrawing money from their accounts with Silicon Valley Bank to meet the expenses. But these startups were not putting this money back in. Recently the deposits of SVB came down to $160 Billion.
Around this time in 2022, nobody was interested in taking loans but SVB, being a bank, had to make some money from its deposits. Since nobody was taking loans, SVB went ahead and invested in Government bonds. These bonds are considered risk-free investment instruments but they provide very low-interest rates. But in 2022, the interest rates increased. At the same time, SVB depositors wanted to withdraw their money. SVB had to sell these bonds at a loss to meet the depositors’ demand for money. SVB sold $21 Billion worth of government bonds which resulted in an after-tax loss of $1.8 Billion. SVB issued a statement declaring the same.
After this, SVB said that it’d raise funds worth $1.25 Billion from the market against shares to make up for the incurred losses. And an additional $500 Million were to be raised from General Atlantic. But the timing couldn’t have been worse for Silicon Valley Bank. Because SVB announced losses on the same day as another bank was going down, SVB customers wanted to take their money out. Since SVB operates in a niched Startup Ecosystem when one investor sent out a note to their portfolio companies to withdraw money from SVB, a large number of people showed up to withdraw their money. This caused a bank run.
Chapters
0:00 - Intro
0:41 - SVB Latest news
1:30 - Pointers
1:56 - What is SVB?
4:00 - What triggered Collapse?
5:55 - Selling Gov Bonds at a loss
8:55 - Bank Run
10:28 - History of Bank Runs
11:44 - 2008 Crisis Management
12:42 - India
13:47 - Future of SVB
15:05 - Takeaways
Please find the link to the Management Consulting Program that I personally lead at Blue Chapter! You receive personal feedback every week & work on an international live strategy project. This is not a mock project & our students proudly speak about this live experience in their interviews:)
If you are applying for fall 2023/2024 MBA programs, check out the global MBA fellowship program:
****
Follow me here
****
The latest SVB or Silicon Valley Bank news is very troubling. SVB Crisis has come at a time when US citizens and people across the world are battling many macroeconomic and financial problems. SVB Bank news has caught many people off guard. Because before Silicon Valley Bank crashed, it grew 3 times from 2019 to 2022. SVB collapse has its roots in multiple problems arising out of fiscal policy and lack of diversification. In this video, I’ve explained why silicon valley bank crashed and why was silicon valley bank in trouble.
Silicon Valley Bank started in 1983 with the sole aim of supporting tech startups and technology companies in silicon valley. As of today, it supports more than 50% of the venture-backed tech startups in the US. This is the USP of SVB. Silicon Valley Bank is focused on one single ecosystem as it’s managing its $200 Billion balance sheet. Because of this while the collapse was happening, the FED didn’t even bother to look into this bank. Silicon Valley Bank is located on the west coast instead of the East Coast where most of the action happens in the USA.
During Covid, the US government rolled out stimulus packages and also printed a lot of money. Because of this, after covid, there was excess money in the market. Where did this money go? Into various bank accounts and from there it got invested in various businesses. The deposits of SVB grew from $75 Billion to $195 Billion in only 3 years. But still, the deposits in SVB grew at a much greater rate than deposits grew in other banks. The rate of average deposit growth for other banks in the US was 37% while the deposits in SVB grew by 200%. This is a massive jump for SVB.
So what triggered this collapse? First of all, SVB didn’t have a Chief Risk Officer from March 2022 to January 2023. For 10 months they didn’t have a CRO. Their CRO resigned in March 2022 and they took a long time to hire a new CRO. The deposit base of SVB was falling during this time. It came down from $195 Billion to $175 Billion in December 2022. If they had had a CRO, then that person would’ve highlighted this issue in the board meetings. Deposits were going down because there was a funding winter in which startups were not receiving money from investors. Because of this startups were withdrawing money from their accounts with Silicon Valley Bank to meet the expenses. But these startups were not putting this money back in. Recently the deposits of SVB came down to $160 Billion.
Around this time in 2022, nobody was interested in taking loans but SVB, being a bank, had to make some money from its deposits. Since nobody was taking loans, SVB went ahead and invested in Government bonds. These bonds are considered risk-free investment instruments but they provide very low-interest rates. But in 2022, the interest rates increased. At the same time, SVB depositors wanted to withdraw their money. SVB had to sell these bonds at a loss to meet the depositors’ demand for money. SVB sold $21 Billion worth of government bonds which resulted in an after-tax loss of $1.8 Billion. SVB issued a statement declaring the same.
After this, SVB said that it’d raise funds worth $1.25 Billion from the market against shares to make up for the incurred losses. And an additional $500 Million were to be raised from General Atlantic. But the timing couldn’t have been worse for Silicon Valley Bank. Because SVB announced losses on the same day as another bank was going down, SVB customers wanted to take their money out. Since SVB operates in a niched Startup Ecosystem when one investor sent out a note to their portfolio companies to withdraw money from SVB, a large number of people showed up to withdraw their money. This caused a bank run.
Chapters
0:00 - Intro
0:41 - SVB Latest news
1:30 - Pointers
1:56 - What is SVB?
4:00 - What triggered Collapse?
5:55 - Selling Gov Bonds at a loss
8:55 - Bank Run
10:28 - History of Bank Runs
11:44 - 2008 Crisis Management
12:42 - India
13:47 - Future of SVB
15:05 - Takeaways
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