Stratechery The End of Silicon Valley (Bank)
Mar 13, 2023
Explore the dramatic collapse of Silicon Valley Bank, driven by steep interest rates and a crisis of confidence. Discover the intricate dynamics of Silicon Valley’s innovation ecosystem, likened to a nurturing rainforest. Delve into the shift from trust and cooperation to competition among investors, reshaping the landscape of tech funding. Hear about decisive actions taken to protect banking confidence and the long-term implications for regulation and innovation. This discussion paints a vivid picture of modern finance's challenges and cultural shifts.
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Banks and Bank Runs
- Banks act as intermediaries, connecting depositors with borrowers and profiting from interest rate differentials.
- Bank runs occur when depositors fear a bank's insolvency and withdraw funds en masse, creating a self-fulfilling prophecy.
Silicon Valley Bank's Failure
- Silicon Valley Bank (SVB) invested heavily in long-term securities, leading to insolvency as interest rates rose.
- The bank's high concentration of uninsured deposits from startups made it vulnerable to a bank run.
The SVB Bank Run
- Moody's downgrade of SVB's debt triggered a sale of securities and an attempted capital raise, which ultimately failed.
- This failure led to widespread panic and a classic bank run, as large, uninsured deposits became at risk.