Odd Lots Dan Davies On What Brought Down Silicon Valley Bank
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Mar 14, 2023 In this discussion, Dan Davies, a Managing Director at Frontline Associates and former Bank of England economist, delves into the shocking collapse of Silicon Valley Bank. He reveals how the bank's tech-heavy customer base was more volatile than anticipated and why their risky investments in long-dated Treasuries backfired. Davies also highlights critical failings in risk management and regulatory gaps that accelerated the downfall, leaving the banking sector to brace for future challenges and uncertainty.
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Hot Money Deposits
- Certain types of deposits, like those from wealth management or tech startups, can be volatile despite appearing sticky.
- Large sums of money can quickly become hot money when depositors fear potential losses.
SVB's Customer Service
- Silicon Valley Bank (SVB) excelled at customer service for tech companies, offering easy onboarding and credit cards.
- Their success at attracting venture capital-funded startups led to a rapid influx of deposits.
Managing Rapid Growth
- Rapid deposit growth during low interest rates is difficult to manage for banks.
- It incentivizes investing in higher-yield, long-dated securities, creating interest rate risk.
