Silicon Valley Bank or SVB was well known with the technology and venture capital sector up until when regulators took control of all of its deposits on march 10, 2023. Th Bank was deemed a failure when it failed to raise two point two five billion to meet their clients withdrawal needs And fund new lending. If you take a look at any bank before you start all of the fancy investing the basic function or core value a bank provide to the consumer is to hold my money, lend me money and give me access when I need it without restrictions. If you have a bank, your credit is fine with a qualifying debt ratio but there is no money to lend you because it simply isn't there then that would raise a red flag. Not as much a red flag unless you're an investor in need of funding a new project. This is the effect not being able to fund new lending would have. The worst feeling as a regular everyday consumer is not being able to withdraw your own money due to your bank not being able to fund client withdrawals. Imagine you as a Business owner, not being able to make payroll.
The Domino Effect
Billions Of Dollars in Assets
As of March,tenth, SVB bank had close to one hundred and sixty seven billion dollars in assets total with around one hundred nineteen billion in total deposits. The bank's main investment vehicles consist of a combination of US Treasury bills and government backed mortgage securities. They were playing it safe while reaping the rewards of a once favorable interest rate. One the federal reserve commenced the introduction of aggressive interest rate hikes, it basically put a once safe investment into an unsafe atmosphere and the clients reacted by withdrawing their money in mass amounts. SVB bank felt the pressure and reacted by attempting a mass dumping of assets, which mainly consisted of US treasury bills and government backed mortgage securities to meet their client's withdrawal needs, fund lending and potentially boost their balance sheets to restore consumer confidence. When it comes to consumer confidence it has a domino effect pattern, meaning we follow each other like sheep whether our leader is heading in the right direction or wrong. Either way the Federal Government felt the need to isolate the situation to that specific bank by discrediting their operational procedures, taking control of their assets, transfer assets to a more financially reasonable environment, and last but not least, open an investigation into the banks financial dealings and hold individuals accountable. Imagine if the average everyday consumer lost confidence in our banking system as whole it would be detrimental our economy. It would open our financial system up to a foreign financial takeover based on consumer demand. Based on just a few of the underlying factors mentioned above is why i felt the government took a no nonsense approach to the situation and took full control followed up with a press conference by the current President of the United States Joe Biden
Consumer And Investor Panic
From the outside looking in, what really caused the collapse of SVB bank was consumer and investor panic, in combination with a loss in confidence. I consider this to be somewhat inappropriate behavior and here is why. Let's say for some strange reason the entire international community due to a series of past and recent events decided that they no longer needed the US dollar due to let's say a consistent increase and decrease in interest rates, these factors would make our dollar an unattractive investment on a global scale and can devalue our dollar to a level where its worth nothing. If the same behavior pattern shown with SVB happens then our entire economy would faster and harder. Imagine after getting your paycheck you're told you cannot cash in because your paycheck is in dollars and we no longer accept it because it has no value. I felt the right thing to do on the investors and depositors end would be to stick with the bank, count their losses since it's an active part of the investment game while giving the banking authorities time to sell off their not so safe investment and slowly but surely withdraw your assets and seek other more favorable safe haven investments like mutual funds, CD’s and a little bit of stock to offset whatever losses you sustained during the rise if interest which the federal government back in twenty twenty two guranteed The United States four increase rate hikes.
Smith Elliot, (2023). First Citizen’s Shares Soar 50% after the bank buys a large chunk of failed Silicon Valley Bank. CNBC