![]() Which I think is the right thing to do on both fronts. ![]() However, the investors (stockholders and bondholders) and executives will not get the government guarantee, so they are expected to lose a lot. The various regulators stepped in and are guaranteeing that all depositors will be made whole. ![]() This is what’s called an asset-liability mismatch. In this example, your need for cash is short-term, but your investment was long-term. This wouldn’t be prudent, even if the investment was guaranteed to do well over the long-term. Credit quality was NOT the issue like it was during the financial crisis, it was a timing issue.Ī Very Simple Example: Imagine you said that you need money next month for a large down payment on a home, and instead of keeping the money in cash, you took the money and invested in something that could lose substantial value over the next month. Silicon Valley Bank didn’t do this, and any hedges they had in previous years were taken off by the end of 2022. Bankers will tell you that it's imperative to match your assets and your liabilities. Their huge misstep was purchasing long-dated treasuries and mortgage-backed securities. The poor risk management was a mismatch between their short-term liabilities (bank deposits) and their asset base (customer loans and investments). Inappropriate investments on their balance sheet.The 800-pound gorilla was Silicon Valley Bank, as they dominated the venture banking market.įrom what I've reviewed of Silicon Valley Banks balance sheet and read about the events that took place, there were two primary driving forces that caused their quick collapse: This was for prudent risk management purposes. Our parent bank, Cupertino National Bank was always mindful of not being overly concentrated in technology related startup companies and therefore our division was a relatively small group within the larger regional bank. We were a division of a larger regional bank called Cupertino National Bank which subsequently years later was purchased by Wells Fargo. The bank I worked for, The Venture Banking Group in Palo Alto, financed early-stage venture backed technology companies. I'm sure you've heard by now that Silicon Valley bank that was closed by regulators late last week.Ī little back story, interestingly enough, a little over 20 years ago, I worked for a bank that competed directly with Silicon Valley bank.
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