My ELI5 for why the bank run happened on Silicon Valley Bank (SVB) 馃憞馃徎
#siliconvalleybank #svb $SIVB #silvergate #tech
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1/ They held a book of about $120bn in investment securities that yielded 1.6-1.8%, which they bought in late 2021. With rates rising, these securities now have about $20bn in unrealized loss.
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2/ They then force liquidated $21bn of their securities and booked a $1.8bn. This was the big move that turned heads. Why would they sell assets?
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3/ Customers that bank with them (primarily growth capital from venture startups VCs) had concern of insolvency rumors. Started the bank run to withdraw. Fyi - SVB is not a small bank, they have $173bn in deposits.
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4/ To make sure they can keep up with large withdrawals, this means they have to sell more securities (at a loss) See point 1 above.
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5/ They only have $16bn of equity. Now it鈥檚 $14.2bn after booking the losses. If they have to liquidate more securities, their capital deteriorates fast, and then we might get the worse case scenario for them.
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6/ They announced this the day after $SI Silvergate bank announced their forced liquidation (the bank is closing, not good)
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TLDR; Basically, management didn鈥檛 think rates could go this high and now they need liquidity to stem deposit outflows.
Mar 10, 2023 路 2:11 AM UTC
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