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Sillicon Valley Bank collapse


Legendary Member
Gold Member
Premium Member
M&A Bootcamp
  • Aug 1, 2021
    Hi Guys!

    The collapse of Sillicon Valley Bank seems to be a current topic. Thought it would be great to generate some discussions. What are your thoughts? Why do you think the bank collapse? What's the consequences for the legal industry?


    Legendary Member
    Gold Member
    Premium Member
    Aug 8, 2022
    In all seriousness though, this tweet seems to be what triggered the bank run (or at least what is believed to have at least contributed to it)
    Looks like FED raising interest rates screwed SVB bc their treasury bonds lost value and they had to sell for liquidity.

    Interest rate rises (in response to inflation) seems to have been largely caused by insane fiscal stimuli (in response to covid) and QE. J Powell Money printer brrrrrrrrr.


    Star Member
    Junior Lawyer
  • Oct 11, 2021
    Hi Guys!

    The collapse of Sillicon Valley Bank seems to be a current topic. Thought it would be great to generate some discussions. What are your thoughts? Why do you think the bank collapse? What's the consequences for the legal industry?
    To add on to what @CorpLawyer00 referred to in the linked tweet is looking at why SVB invested in long-term securities. Matt Levine over at Bloomberg does a great explanation of this. Here's the excerpt from Matt:

    "The weird problem with focusing exclusively on crypto or startups in 2021 is that they had too much money. If you were the Bank of Startups, the main service that you provided to startups is that equity investors would give them a truck full of cash and they’d deposit it at your bank. [...]
    People kept flinging money at SVB’s customers, and they kept depositing it at SVB. Perfectly reasonable banking service. But the customers didn’t need loans, in part because equity investors kept giving them trucks full of cash and in part because young tech startups tend not to have the fixed assets or recurring cash flows that make for good corporate borrowers. Oh, there is some tech-industry-adjacent lending you can do. Tech founders want to buy houses, and you can give them mortgages. Venture capital and private equity funds want to manage liquidity and/or juice their reported return rates by paying for investments with borrowed money rather than drawing from their limited partners, so you can get into the capital-call-line-of-credit business. There are vineyards near Silicon Valley and you can develop an expertise in vineyard financing. And, sure, some of your tech-company customers do need to borrow money, and are creditworthy, and you lend them money and that works out. But there is a basic imbalance. Customer money keeps coming in, as deposits, but it doesn’t go out, as loans. So you have all this customer cash, and you need to do something with it. Keeping it in, like, Fed reserves, or Treasury bills, in 2021, was not a great choice; that stuff paid basically no interest, and you want to make money. So you’d buy longer-dated, but also very safe, securities, things like Treasury bonds and agency mortgage-backed securities. [...] And as of the end of 2022, Silicon Valley Bank, the actual Bank of Startups, had about $74 billion of loans and about $120 billion of investment securities. [...] to put it in different crude terms, in traditional banking, you make your money in part by taking credit risk: You get to know your customers, you try to get good at knowing which of them will be able to pay back loans, and then you make loans to those good customers. In the Bank of Startups, in 2021, you couldn’t really make money by taking credit risk: Your customers just didn’t need enough credit to give you the credit risk that you needed to make money on all those deposits. So you had to make your money by taking interest-rate risk: Instead of making loans to risky corporate borrowers, you bought long-term bonds backed by the US government. The result of this is that, as the Bank of Startups, you were unusually exposed to interest-rate risk. Most banks, when interest rates go up, have to pay more interest on deposits, but get paid more interest on their loans, and end up profiting from rising interest rates. But you, as the Bank of Startups, own a lot of long-duration bonds, and their market value goes down as rates go up. Every bank has some mix of this — every bank borrows short to lend long; that’s what banking is — but many banks end up a bit more balanced than the Bank of Startups."

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