GLADIATUS - FORUM GILDII WYBRAŃCY BOGÓW

[rojonirabeya1]

Are you wondering what the hell happened at Silicon Valley Bank ? The bank based in California, United States, was taken over by US regulators on Friday and placed under the control of the Federal Deposit Insurance Corporation (FDIC). After several days of chaos, with a failed capital request and a flight of depositors who withdrew their funds for fear of collapse. The speed of SVB's demise has been especially surprising. Last Tuesday, SVB CEO Greg Becker was at an investor conference answering questions about what he does to relax in his day-to-day life. A few days later, the bank he ran collapsed. How did it come to this? SVB's actions in the last week, in which it surprised the market with a planned capital increase that later fell through, are partly to blame . Venture capitalists imploring the founders they backed to withdraw money from the bank didn't help at all. But the seeds of SVB's demise had been planted months ago . To understand it better, I want to recommend the explanation given by Marc Rubinstein in his Substack Net Interest.

Rubinstein is a former hedge fund partner, and one of the brightest minds out there when it comes to analyzing financial institutions. I'm going to highlight 3 segments of his note on SVB, but I recommend that you read it in its entirety . SVB deposits multiplied SVB's position as a reference bank in the technology sector has made it a great beneficiary of the rise of Asia Phone Number List Silicon Valley in recent years. As venture capital investors raised huge funds and invested that money in startups operating with the bank, billions in deposits poured into SVB . Rubinstein notes: "Driven by the venture capital funding boom, many of Silicon Valley Bank's clients were swimming in cash throughout 2020 and 2021. Between the end of 2019 and the first quarter of 2022, the bank's deposit balances more than tripled to reach $198 billion (including a small acquisition of Boston Private Financial Holdings). This compares with industry deposit growth of "just" 37% over the period." SVB made a risky bet to invest that cash Typically, a bank converts those deposits into loans to customers.



But, partly because of the rise of technology, there wasn't much demand for loans among SVB's tech clients. Instead, SVB decided to put that cash into securities . When banks do this, they have to decide whether they are going to hold those securities long-term, in which case they would be considered "held to maturity" (HTM) assets , or whether they are going to be available for sale at any time, in which case In this case they would be "available for sale" (AFS) assets . HTM assets do not have to be valued at market prices, that is, their value does not rise or fall with interest rates or the market in general. AFS assets, on the other hand, are much more volatile, as their value on the balance sheet rises and falls with the market. As a result, AFS portfolios tend to be actively managed by the bank. And here Rubinstein returns: "The bank invested most of these deposits in securities. It adopted a two-pronged strategy : sheltering part of its liquidity in shorter-duration available-for-sale securities, while seeking yield with a longer-duration portfolio held to maturity. About cost, the shorter duration AFS stockpile grew from.
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