US Banking Crisis: The Truth Behind The Disaster
ColdFusion
Silicon Valley Bank CollapseThe collapse of Silicon Valley Bank led to
widespread panic not witnessed since the financial meltdown of 2008. The
Federal Deposit Insurance Corporation (FDIC) has since taken over control and
guaranteed customers access to up to $250,000 on Monday.During the
pandemic in 2020, the bank enjoyed a healthy period of growth due to low
interest rates and excessive money printing from the US Federal Reserve. Tech
startups were able to raise money easily due to cheap credit. However, nearly
50% of all US startups have some deposits in the bank, and this proved to be a
problem.The bank wanted to make a larger profit from the cash they were
sitting on, and long-term bonds seemed like a safe investment. This led to an
increase in demand for these bonds and their price. Meanwhile, tech startups
were struggling to get financing as credit dried up, and they needed to dip
into their cash to fund their operations. The bank had enough liquidity to deal
with these withdrawals initially but eventually gave in.On March 8, 2023, the
bank made a bombshell announcement that they were selling off their entire
liquid bond portfolio worth over $21 billion. This resulted in a $1.8 billion loss
in the sale. To recoup some losses, management decided to raise some
capital. However, this proved to be a grave error.
Silicon Valley Bank's senior management made a mistake by investing short-
term deposits in longer-term fixed-rate assets. To minimize their losses, the
bank could have started to exchange their long-term Treasuries for bonds
yielding higher interest rates. However, the CEO, CFO, and CMO sold $4.4
million worth of company stock just weeks before the bank's decline. The
stocks of First Bank Republic and Westpac Bancorp have also seen significant
declines, some as much as 66% in a day. Many hedge funds have also started
to short sell, making it the worst week since 2020.Unfortunately, this week is
not starting out any better, although depositors of Silicon Valley Bank and
Signature Bank will be made whole. The US government's Federal Reserve and
financial sectors have devised a solution, which we will discuss shortly. The
tech sector will experience the most pain. The current financial system is much
ColdFusion
Silicon Valley Bank CollapseThe collapse of Silicon Valley Bank led to
widespread panic not witnessed since the financial meltdown of 2008. The
Federal Deposit Insurance Corporation (FDIC) has since taken over control and
guaranteed customers access to up to $250,000 on Monday.During the
pandemic in 2020, the bank enjoyed a healthy period of growth due to low
interest rates and excessive money printing from the US Federal Reserve. Tech
startups were able to raise money easily due to cheap credit. However, nearly
50% of all US startups have some deposits in the bank, and this proved to be a
problem.The bank wanted to make a larger profit from the cash they were
sitting on, and long-term bonds seemed like a safe investment. This led to an
increase in demand for these bonds and their price. Meanwhile, tech startups
were struggling to get financing as credit dried up, and they needed to dip
into their cash to fund their operations. The bank had enough liquidity to deal
with these withdrawals initially but eventually gave in.On March 8, 2023, the
bank made a bombshell announcement that they were selling off their entire
liquid bond portfolio worth over $21 billion. This resulted in a $1.8 billion loss
in the sale. To recoup some losses, management decided to raise some
capital. However, this proved to be a grave error.
Silicon Valley Bank's senior management made a mistake by investing short-
term deposits in longer-term fixed-rate assets. To minimize their losses, the
bank could have started to exchange their long-term Treasuries for bonds
yielding higher interest rates. However, the CEO, CFO, and CMO sold $4.4
million worth of company stock just weeks before the bank's decline. The
stocks of First Bank Republic and Westpac Bancorp have also seen significant
declines, some as much as 66% in a day. Many hedge funds have also started
to short sell, making it the worst week since 2020.Unfortunately, this week is
not starting out any better, although depositors of Silicon Valley Bank and
Signature Bank will be made whole. The US government's Federal Reserve and
financial sectors have devised a solution, which we will discuss shortly. The
tech sector will experience the most pain. The current financial system is much
