Plain English with Derek Thompson Silicon Valley Bank Collapse FAQ: Whose Fault Is It? How Can We Stop a Bank Panic? What Comes Next?
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Mar 13, 2023 Liz Hoffman, business and finance editor at Semafor and author of 'Crash Landing,' dives into the shocking collapse of Silicon Valley Bank. She unpacks how a bank run fueled by tech clients and rising interest rates led to the demise of America's 16th-largest bank. Hoffman discusses the government's response, the role of FDIC insurance, and how social media can trigger panic. With lessons on stability amidst banking innovation, she highlights the challenges and risks smaller banks face in today's volatile environment.
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SVB's Rise
- Silicon Valley Bank (SVB) became the go-to bank for startups due to its experience with risky loans and VC connections.
- They encouraged deposits by requiring startups to bank with them to access loans, creating a valuable inside track.
Double Sensitivity
- SVB invested heavily in mortgage-backed securities during the pandemic, seemingly a safe bet initially.
- However, this strategy became a major vulnerability due to their sensitivity to interest rate changes.
Interest Rate Squeeze
- SVB's success was tied to low interest rates, which fueled the startup boom.
- When the Fed raised rates, SVB's bond values decreased and startup funding dried up, squeezing them from both sides.
