EXPLAINED: Silicon Valley Bank Collapse

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How did Silicon Valley Bank collapse in 48 hours? How is it possible that one of America's top 20 banks with more than 40 years of experience collapsed due to one bad decision? What are the industri...

How did Silicon Valley Bank collapse in 48 hours? How is it possible that one of America's top 20 banks with more than 40 years of experience collapsed due to one bad decision? What are the industries most affected by this, and what's the contagion effect 0:00 Intro 0.30 Silicon Valley Bank 2:00 Mortgage-Backed Securities 3:23 Bank Run 🌼 GET $30,000 in rewards on Bybit: https://partner.bybit.com/b/boxyt ●▬▬▬▬▬▬▬Recommendations▬▬▬▬▬▬▬● 📲Binance Exchange : http://boxmining.co/binance 📖 Guides, tutorials and insights: https://boxmining.com/ 🔒Hardware Wallet: http://boxmining.co/ledger 👍🏻Brave Browser: http://boxmining.co/brave ●▬▬▬▬▬▬▬▬▬▬Community▬▬▬▬▬▬▬▬▬● Boxmining clips: https://www.youtube.com/channel/UCjFy3VBgOZanySOLhQu6GaQ Boxmining News Website: https://www.boxmining.com/ Telegram Group: https://t.me/BoxminingFam ●▬▬▬▬▬▬▬▬▬▬▬Social▬▬▬▬▬▬▬▬▬▬▬● Twitter: https://twitter.com/boxmining Discord: https://discord.gg/9qCpqpZm8G Facebook: https://www.facebook.com/boxmining ●▬▬▬▬▬▬▬▬▬▬Disclaimer▬▬▬▬▬▬▬▬● I'm not a professional financial adviser and you should always do your own research. I may hold the cryptocurrencies talked about in the video.

AI Analysis

Silicon Valley Bank (SVB), one of America's top 20 banks with over 40 years of experience, spectacularly collapsed in just 48 hours, largely due to a single critical misstep compounded by panicked withdrawals. This rapid downfall stemmed from its investment strategy during a period of massive deposit growth, which exposed it to significant risk when interest rates rose. The collapse has far-reaching implications, particularly for Silicon Valley startups, the cryptocurrency market, and potentially the broader banking sector.

Here’s a breakdown of how it all went down:

* Silicon Valley Bank's Niche: SVB wasn't a bank for the average person; it primarily served Silicon Valley startups. It was known for being very lenient with nascent companies, even those without established business track records. It's estimated that over 50% of startups in Silicon Valley banked with SVB or had strong ties to them, a crucial detail that played a huge role in its downfall.
* The Influx of Deposits: Ironically, SVB's collapse began with good fortune. From the end of 2019 to the end of 2021, its deposits surged from $61 billion to an astounding $189 billion – almost a threefold increase. This massive influx was a direct result of the booming tech market.
* The "Bad Decision" – Investing in Mortgage-Backed Securities (MBS): With all this new money, SVB faced a problem: it couldn't grow its loan book fast enough to generate the desired yield. So, it poured over $80 billion into mortgage-backed securities. The issue with these particular investments was their low yield, just 1.56%, and their long duration, with 97% locked in for over 10 years. This was a poor decision because the rewards were minimal, yet the funds were locked for a long time, exposing the bank to significant interest rate and housing market risks.
* Rising Interest Rates Wreak Havoc: Trouble truly began in 2020 as the Federal Reserve started aggressively increasing interest rates, continuing through 2023. This move severely devalued SVB's long-duration mortgage-backed securities. Why? Because investors could now buy risk-free bonds from the Fed offering 2.5 times the yield of SVB's MBS. In a normal market, this problem might not have been fatal if customers kept their funds in the bank, as the securities would eventually mature and recoup value.
* The "Boneheaded Decision" – A Public Announcement at the Worst Time: The truly fatal blow was SVB's executives' decision to announce all these financial problems on the very same day Silvergate Bank, another crypto-friendly bank, collapsed. This timing caused immediate panic and people naturally connected the dots, associating SVB's issues with a broader banking crisis.
* The Bank Run Triggered by VCs: Adding fuel to the fire was the unique structure of Silicon Valley's startup ecosystem. Many startups are backed by the same few large venture capital (VC) firms. If one VC firm got spooked, others would follow suit. That's exactly what happened: VCs advised their portfolio companies to withdraw funds. This led to a staggering $42 billion being withdrawn from SVB overnight, delivering the fatal blow.
* Implications for Silicon Valley Startups: The immediate and most severe impact is on Silicon Valley startups. Many still have significant funds trapped in SVB. A huge problem is that these are large company deposits, not individual accounts, meaning they aren't fully protected by FDIC insurance, which only covers up to $250,000. Companies with billions stuck will face immense challenges, potentially leading to widespread job losses as they can't pay employees.
* Impact on the Cryptocurrency Space: The collapse also heavily impacted the crypto world. The stablecoin USDC, which aims to maintain a $1 peg, held roughly 25% of its reserves with Silicon Valley Bank. This exposure caused USDC to de-peg, trading at about a 9% discount to its intended $1 value, a significant event for the stability of the crypto market.
* Broader Banking Sector Concerns: The rapid and unexpected fall of SVB has shaken confidence across the banking sector. Investors are now scrutinizing other banks, leading to increased withdrawals from other institutions. The fear is that if this trend continues, it could trigger a much larger financial crisis. The coming months will reveal if other banks can withstand this contagion effect.

Transcript

How in the world does Silicon Valley bank collapse in 48 hours? How is it possible that one of America's top 20 banks with more than 40 years of experience collapse due to one bad decision? What are the industries most affected by this? And what's the contagion effect? In this video, we are going to discuss this in the shortest amount of time possible. And if you want videos more like this and more live streams as well, make sure you click the subscribe button down below so you're always inform...

How in the world does Silicon Valley bank collapse in 48 hours? How is it possible that one of America's top 20 banks with more than 40 years of experience collapse due to one bad decision? What are the industries most affected by this? And what's the contagion effect? In this video, we are going to discuss this in the shortest amount of time possible. And if you want videos more like this and more live streams as well, make sure you click the subscribe button down below so you're always informed. First, what is Silicon Valley bank? Now, this is not very popular with regular people because this bank is largely used, unsurprisingly, by Silicon Valley startups. They are very lenient towards startup companies that may not have proven business track records. In fact, some estimate that almost more than 50% of startups bank with Silicon Valley bank or have some form of ties with them. Remember this fact as it will be very important in the next part. So what led to this collapse? Well, it was surprisingly some very good fortune that led to its eventual downfall. So what was happening was that in 2021, Silicon Valley bank saw a massive influx of deposits, which jumped from $61 billion from the end of 2019 to $189 billion at the end of 2021. This is almost a threefold increase in deposits. This jump was largely due to the booming tech market. Now, this is good news, but the problem was that as deposits grew, Silicon Valley bank didn't really know what to do with this large influx of money. They could not grow their loan book fast enough to generate the yield that they wanted to see on this capital. As a result, they purchased a large amount of mortgage-backed securities. In fact, they purchased more than $80 billion worth of these securities. Now, the problem here is that the yield for these mortgage-backed securities wasn't very high. It's at 1.56%. And 97% of these were of 10 plus year duration. So they're locked in for a long period of time. This is a bad decision because the rewards were low at only 1.56%. And the risks were high because the funds were locked for more than 10 years and you had exposure to the housing market. Now, trouble came in 2020 as the Fed increased interest rates and continue to do so through 2023. The problem here is that the value of Silicon Valley banks' mortgage-backed securities plummeted. This is because investors can now purchase long-duration risk-free bonds from the Fed at pretty much 2.5x the yield of the mortgage-backed securities. In normal markets, a problem like this wouldn't be fatal. Because so long as the customers kept their funds in the bank, maybe for the next 10 years, these funds could be recovered and the customers could be paid back. Now, here comes the really boneheaded decision by their executives. They announced all these problems on the same day Silvergate Bank collapsed. I mean, why make a better time than this? So, naturally, people panicked and they drew associations. They tried to connect the dots. And what's worse about this panic is that remember earlier when I said that a lot of startups were owned by the same venture capital firms? The problem with that is that there are only really 10 good VC firms in Silicon Valley. So, if you upset one of them, the other nine is going to freak out too. And that's exactly what happened. And what happened was $42 billion were literally withdrawn overnight. This was the fatal blow. This was what killed it. So, what are the implications of this? Well, first and foremost, it's going to really drastically kill startups in Silicon Valley. There are still a lot of funds still stuck in Silicon Valley Bank. And the worst part about this is that because a lot of these investors were large companies rather than individual customers, they're not going to be protected by FDIC insurance. FDIC insurance only published up to $250,000. So, startups have $6 billion in these banks. Whoops. Yeah, you're not covered by insurance. This is going to affect a lot of companies and eventually also a lot of jobs in Silicon Valley as well. Because if companies don't have money, they can't afford to pay their employees. Second impact, which is very huge, is in the cryptocurrency space. This is because the stablecoin USDC is holding their funds in Silicon Valley Bank. Roughly right now, the estimate is around 25% of funds held by Circle is in Silicon Valley Bank. And that's quite a large proportion. This has currently caused USDC to de-peg from their $1 value. Right now, we're standing at roughly a 9% discount for USDC. Yikes. This will also have impact in the banking sector overall as well. The fall of Silicon Valley Bank just fell too quickly. And it's causing other investors to withdraw money from other banks. And if that's the case, then we might have a very big crisis on our hands. Only time will tell if these banks will survive. Well, guys, I hope this was a very useful infographic and you learned something from this. If you found it useful, make sure you click the like button down below and subscribe to this channel. This is the first time I'm producing an info video. So tell me what you guys think of this format. And make sure you subscribe to this channel because we have a lot of live streams and other very important videos like this coming up. See you in the next video.