87: SVB's Risky Bailout and The Bank Run “Domino Effect”
On The Market
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Silicon Valley Bank's Bonds Are Worth 1% to 2%, Right?
The yields were between 1% and 2% for most of the pandemic years, which is really, really low. But when interest rates rise, it decreases the value of those lower yield bonds. The only way that Silicon Valley bank can sell their bonds that are worth 1% to 2% is by discounting them. And so they weren't able to raise sufficient cash in order to cover their reserves. Because of these two things, the lower bond values and the fast withdrawals, SBB needed outside capital. They went to Goldman Sachs last week to raise more money.
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