The US Federal Reserve finally raised interest rates and it raised rates quite quickly. The prices of SVBs assets fell significantly, the bank was looking at losses on its books. But what's weirder is that a long term bond is more sensitive to this inverse relationship. So if they buy it now, they will benefit from the discount and also get the 2% interest rate.
On 7th March, Silicon Valley Bank tweeted, “Proud to be on @Forbes’ annual ranking of America’s Best Banks…”
By 10th March, SVB’s stock price had tanked by 60% and the bank was taken over by an arm of the US government.
What on earth happened?
In today’s episode for 13th March 2023, we try to break down what’s turning out to be the biggest financial disaster since 2008. Remember, this is a simplified explainer so we’ll have to sidestep some of the nuances of the US banking system.
With that, let’s dive in.