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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsThis is a good article about what the hell happened at Silicon Valley Bank...
https://apnews.com/article/svb-fed-bonds-rates-banks-inflation-a24b28b3caeede91c76cd120aa9b7966One of Silicon Valleys top banks fails; assets are seized
'NEW YORK (AP) Regulators rushed Friday to seize the assets of one of Silicon Valleys top banks, marking the largest failure of a U.S. financial institution since the height of the financial crisis almost 15 years ago....Silicon Valley Bank, the nations 16th-largest bank, failed after depositors hurried to withdraw money this week amid anxiety over the banks health. It was the second biggest bank failure in U.S. history after the collapse of Washington Mutual in 2008.
Internet TV provider Roku was among casualties of the bank collapse. It said in a regulatory filing Friday that about 26% of its cash $487 million was deposited at Silicon Valley Bank. Roku said its deposits with SVB were largely uninsured and it didnt know to what extent it would be able to recover them.
As the Fed raises its benchmark interest rate, the value of generally stable bonds starts to fall. That is not typically a problem, but when depositors grow anxious and begin withdrawing their money, banks sometimes have to sell those bonds before they mature to cover the exodus...That is exactly what happened to Silicon Valley Bank, which had to sell $21 billion in highly liquid assets to cover the sudden withdrawals. It took a $1.8 billion loss on that sale.
James48
(4,438 posts)Who would put 26% of its $487 million of the companys cash into a single bank?
sir pball
(4,757 posts)From the OP, emphasis added: "[Roku] said in a regulatory filing Friday that about 26% of its cash $487 million was deposited at Silicon Valley Bank."
3Hotdogs
(12,396 posts)Or 26% of $487 million?
sir pball
(4,757 posts)It sounds like they had $1.873B total cash on hand, of which 26%, $487M, was in this bank. Not sure what best practices are for spreading cash around, but it certainly wasn't all their eggs in one basket.
no_hypocrisy
(46,157 posts)Or is it apples-and-oranges?
3Hotdogs
(12,396 posts)the '70s saw high inflation, accompanied by financial instruments paying high interest rates. S & L's were prohibited from paying more than the interest rate that was set by Congress.
Enter Ronnie Raygon and deregulation. S & L's were now allowed to pay whatever interest they wanted.
Silverado began paying higher interest but could not attract depositors to buy their notes. The stock market was giving higher returns (until it didn't).
Then came the 500 point drop in the Dow - 1987.
Silverado and other S & L's were then subject to bank runs - withdrawals to cover stock margin calls.
Silverado couldn't meet the withdrawals.
Jim__
(14,082 posts)I recently withdrew a lot of money from my bank, not because I was anxious, but because the bank was paying something like 0.05% interest. The bank itself sent me an e-mail telling me to buy a CD from them at 4% interest. I found higher interest rates elsewhere.
My question is, did Silicon Bank's depositors withdraw money because they were anxious, or because the bank wasn't paying sufficient interest? I understand why a lot of people withdrawing money and the value of bonds dropping could cause a problem for the bank.