This past week, Silicon Valley Bank (SVB) was closed by banking regulators. Let’s understand the basics of how this happened and why it matters to the tech industry.
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HOW CAN A BANK WITH SO MUCH MONEY SHUT DOWN?
- Banks never hold all the money that they have on the books as deposits
- Banks manage a portfolio of investments
- Banks try and manage the portfolio within certain ratios
- Banks have regulations
LEVERAGE, INTEREST RATES, RISK, TIMELINES, COMMUNICATIONS and PANICS
- Basics Part I - Systems built on Trust, Regulations to Enforce Actions
- Basics Part II - What is SVB?, Deposits vs. Investments, Leverage, Interest Rates
- Higher interest rates increases the risk of existing investments
- Valuations vs. Valuations on Paper
- Insurance, Diversified Portfolio
- Cloud Analogies - Single vs. Multi-Cloud, Shared Resources Risks, Profitability of a Service, Best Practices vs. Practicality, Rising Costs (or Shortages)
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