3 min read

Quick Simple News for people with no time: Silicon Valley Bank Collapsed

SVB Collapse and why
Quick Simple News for people with no time: Silicon Valley Bank Collapsed
Photo by Etienne Martin / Unsplash

Today's financial markets are on FIRE.

Silicon Valley Bank collapses after failing to raise capital | CNN Business
Silicon Valley Bank collapsed Friday morning after a stunning 48 hours in which its capital crisis set off fears of a meltdown across the banking industry.
Regulators shut down Silicon Valley Bank in the second-largest U.S. bank failure ever
The FDIC took over the lender — the 16th largest U.S. bank and a tech industry favorite — after a run on deposits and concerns about a broader crisis that led investors to dump other bank stocks.
Explainer: What caused Silicon Valley Bank’s failure?
SVB Financial Group Inc’s shutdown and takeover by banking regulators on Friday can be traced to the U.S. Federal Reserve raising interest rates and souring the risk appetite of investors.

Here's the gist of it:

Silicon Valley Bank made a very poor asset allocation by putting all its money in bonds. Bonds that are now worth less than the inflation.

So VCs forced startups to withdraw money from the bank. VCs also have an angle of shorting the bank stocks and opening up lending services to SVB.

Win-win for VCs, lose-lose for SVB.

That's why they say "Cash is king", it is the best cushion for uncertain economic times. SVB is in this deep hole because they have no liquidity, all its assets are locked into these bad bad bonds.

So when an emergency hits, guess what? Whoever has the liquidity wins.

If you don't want to get into a similar type of situation, I've created a blog post on risk management and Why Everything You Know About Risk is Wrong.

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