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🦧 when rising rates make you go bankrupt
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🏦 SIVB 0.00%↑ (silicon valley bank group) - who were they?
"svb" was a regional bank headquartered in california (also the 16th largest bank in the us)
simply put, it’s where all the “tech money / deposits” were on
specifically, it started off being a bank lending to small businesses and tech startups but later changed to giving out loans to venture capital firms
💀 dead in 48 hours
svb announced last wednesday that the bank needed to raise $2.25b rather unexpectedly and it spooked the market
that triggered a massive digital bank run (aka pretty much everyone wanting to withdraw their deposits all at once)
customers withdrew a total of $42b by the next day
svb’s stock price declined 60% in a day
🤔 why tho?
one big reason is that interest rates were at an all time low during the pandemic for almost two years – this was a time when svb had consistently large influx of cash as money
at the time of failure, ~70% of its $76bn in outstanding loans were dependent on private equity or venture capital for repayment
with all that idle cash (more than it's ever had a hand on), svb decided to invest in longer term bonds (i.e. mortgage securities, 10-year-or-longer us treasuries)
but the fed soon began raising rates and the fed's been raising rates fast, which caused extreme losses for the bank (bond prices fall as rates rise)
imo: it could’ve been a great opportunity (increased deposits led by low interest rate environment) used wisely, but the human aspect (of course, always the unexpected factor) of the business kinda ruined it
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💡 something im thinking about
google pixel's "magic eraser" is coming back, but with a price (click image)