If you’ve been following me daily, then you likely know what’s going on with SVB. For those unknown, I’ll bring you up to speed quickly. The banking industry was thrown into absolute chaos on March 10 when Silicon Valley Bank suddenly collapsed. This was disastrous and is now the second-largest bank failure in American history, behind Washington Mutual’s collapse in 2008. Which of course led to most Americans fearing they will lose everything this year.
Why is this important?
Well, it’s leaving investors completely spooked! To be frank, many investors have been completely shaken to the point of losing confidence in the entire banking sector. This is exactly why they are turning to alternative asset selections like gold, silver, and platinum.
What’s Going On In The Banking World Today?
But first, some info on SVB…
Silicon Valley Bank, based in Santa Clara, California, was a popular lender for many tech companies. The bank offered specialized financial services, industry expertise, a valuable network, and a strong reputation.
These services were tailored to the needs of startups, such as venture debt, corporate banking, and asset management. The bank aimed to help startups manage their finances, optimize their cash flow, and scale their businesses.
Silicon Valley Bank was created in 1983 and offered higher interest rates on deposits than its larger rivals to attract customers. The company then invested clients’ money in long-dated Treasury bonds and mortgage bonds with strong returns.
The bank’s deposits rose from $49 billion in 2018 to $102 billion by the end of 2020, demonstrating the effectiveness of this strategy in previous years. All changed, though, when the Federal Reserve started to boost interest rates, decreasing the value of the existing bonds Silicon Valley Bank was holding. In order to cover client withdrawals, the bank was forced to sell the bonds at a loss, which resulted in a substantial loss of $1.8 billion.
Due to this loss, Silicon Valley Bank suddenly announced that it needed to raise additional capital of $2.25 billion by issuing new common and convertible preferred shares. This decision caused panic and a run on the bank. Fears of contagion have already led to the closure of Signature Bank in New York and also the acquisition of Credit Suisse by UBS for $3.24 billion.
Authorities claim that despite the withdrawals from smaller banks, the US financial system is still stable. Consumers withdrew $120 billion in deposits from small banks in the week ended March 15, while deposits at large banks climbed by $67.4 billion. Regulators assured investors that the U.S. banking system is healthy and resilient despite the outflows.
This is a SHOCKING amount of deposits and we should ALL BE WORRIED! There are many reasons why I suggest diversifying your portfolio and this is just one of the many. Let’s see what happens with the banks the rest of the year, but the signs are not looking good at all.