![]() ![]() The result was that SVB was forced to sell the part of its portfolio that was liquid (available-for-sale) at a loss ($1.8 bn) to raise cash. However, the macro environment changed (deteriorated) suddenly, causing two problems: 1) the end of abundant liquidity meant that start-ups needed to withdraw cash faster than anticipated (corporate deposits are famously more volatile than retail ones) – deposits went down from $198 bn in Mar 2022 to $165 bn in Feb 2023 2) the aggressive interest rate hikes of the Fed to combat inflation meant that the value of SVB purchased bonds (at peak prices) went abruptly down. The (common) choice was to invest in (long-term) mortgage bonds and Treasuries. Given that banks make money on the difference of the interest rate they pay to depositors vs the one they receive from borrowers, SVB needed to do something to close the gap. At the end of 2022 SVB had $173.1bn in deposits and only $74.3bn in loans (12/31/22 static balance sheet view), with deposits having tripled in the last 2 years. The abundance of capital and funding over the past years meant that start-ups had more money to deposit than a need to borrow. As the start-up ecosystem around Silicon Valley boomed, so did SVB, which banked with nearly 50% of US venture-backed #technology and life science companies. SVB is (was) a bank for start-ups, offering commercial banking, investment banking, and #venturecapital services (next to a private banking and wealth management arm). ![]() It took only a few days for the entire model to collapse. Starting 40 years ago, in 1983, Silicon Valley Bank rose to become the ( #banking) backbone of the #startup world. ![]()
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