Silicon Valley Bank Collapse: Lessons Learned & Actionable Steps for Investors
RL161– Silicon Valley Bank Collapse: Lessons Learned and Actionable Steps for Investors
In this episode of the Retirement Lifestyle Show, Roshan Loungani, Erik Olson, and Adrian Nicholson discuss the recent Silicon Valley Bank collapse. They break down why the bank failed, the factors that led to its collapse, and whether your money is safe at Silicon Valley Bank.
[02:56] Is Your Money Okay in Silicon Valley Bank?
[04:38] Bank Run: What is it and Why it Happens
[06:45] Bank Deposit Programs and Insurance Coverage
[10:03] Why Silicon Valley Bank Collapsed
[11:53] How Silicon Valley Bank was Uniquely Positioned to Crash
[14:40] The Massive Increase in Deposits at Silicon Valley Bank
[17:18] The Inverse Relationship Between Bond Prices and Interest Rates
[20:50] Comparing the SVB Collapse to the 2008 Crash
[26:88] Government Involvement in the Private Sector
[28:10] The Unintended Consequences of Government Stimulus
[30:43] Problem with Banks Having Deep Concentrations in One Area
[36:14] Investing in a High-Interest Rate Environment
[41:17] Opportunities and Risks After the SVB Collapse
[44:30] Where to Look For Opportunities During Uncertain Times
[49:02] Why Patience is Key to Investing Success
[51:50] Parting Thoughts
For more links and the full show notes keep scrolling down!
Roshan Loungani can be reached at firstname.lastname@example.org or at 202-536-4468.
Erik Olson can be reached at email@example.com or 815-940-4652.
Adrian Nicholson can be reached at firstname.lastname@example.org or at 703-915-8905.
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Full Show Notes:
The Silicon Valley Bank Collapse
Silicon Valley Bank recently went under and was taken over by the FDIC after facing one of the biggest bank runs in the country's history. Adrian, Eric, and Roshan believe the driving force in the bank's collapse is the fact that they violated one of the foundational rules of finance - always diversify. Diversify your customer base and diversify your source of income. Silicon Valley Bank was heavily invested in long-term government bonds, and their primary customers were venture-funded startups. When tech stock valuations were soaring, SVB enjoyed a seemingly endless stream of cheap deposits. However, recent sell-offs in tech stocks and downturns in startup valuations slowed down the flow of venture capital. This forced struggling tech companies to rapidly burn through the cash that previously sat as deposits at SVB.
Silicon Valley Bank had a huge dependence on venture capital - a dependence that made it super successful. Interestingly, it's also what helped destroy it. Roshan believes the bank was uniquely positioned to fail. At its peak, the bank had over $200 billion in assets. However, it could only attract a few individual customers and even fewer corporate accounts, meaning a highly undiversified customer base. The bank's decision to sell its over $21bn bond portfolio forced them to recognize a $1.8bn loss. And finally, the FDIC only insures bank deposits of up to $250,000. Fortunately or unfortunately, SVB's clients deposited much more. This means that much of the money deposited at SVB was uninsured.
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