Second bank collapse in USA in a week - SVB Collapse
By FinFlicker
The crux of the problems began when the US Fed began dramatically raising interest rates from 0% to nearly 5% in a matter of 6 months.
SVB Bank was one of the most prominent lenders to the start-up world,
Most of the 175 billion deposits came from start ups!
As interest rates rise, Startups find it difficult to raise funds from VCs.
This meant that the start-ups wanted to get back the deposits they had made with the SVB.
SVB saw huge inflow of deposits in 2020 and 2021.
So where could they park the money?
So he invested this money in Mortgage Based Securities (MBS).
Bond prices are inversely proportional to interest rates
when interest rates rise
Bond prices fall.
Had to sell the bond at a loss.
Meanwhile, the cash-starved start-up wanted to withdraw the deposit
Hence SVB felt short of capital. SVB Bank liquidated.