Did you ever hear about Silicon
Valley Bank before this? The regional banking sector in the stock
market isnt my cup of tea, personally. As a matter of general
rule, I dont like banking as a business model.
Heres why, by the way what a bank does is take deposits and
build a liability column. Yeah, your deposits are their
liabilities, which ought to be ready to release to you at all times
even if everyone comes at once, but on the flip side, they use the
liability column as collateral to make loans and investments.
SVB (Silicon Valley Bank) had
nearly $200B in deposits, so they invested those and made loans
with them, but they did it all incorrectly. Heres the irony of it
if you deposit $100M at a bank today, they take it and put it in
3-month Treasury bonds (which yield 4.75%), and the bank closes
down so you call BlackRock, Vanguard, or whomever SVB was using to
buy these Treasuries, theyll tell you that those are under the name
of SVB, not yours.
In other words, when one deposits cash in a bank and sees the
money is available in their account, the truth is that it isnt.
The first $250,000 is insured by the FDIC, and the rest
(some clients have millions, tens of millions, and hundreds of
millions on deposit) are now goign to be made whole with s special
program, created for this.
Why should you care? After all, were not all Silicon Valley
folks. The answer is that we should care (a lot).
For one, we should care because what happened to SVB is their
bond portfolio got hammered because of the FED rate hikes. Whats
actually pretty insane to think about is that the FEDs own balance
sheet is suffering from massive losses itself!
Once those assets on the balance sheet
were in the red, the bank immediately had an issue: their
ass...
