The troubles at the VC community’s favourite bank are a result of two powerful macro trends feeding off each other.
with the news that Silicon Valley Bank would be forced to go cap in hand to investors to raise capital. The $US2.3 billion injection was required to plug a hole in its balance sheet to cover losses on a fire sale of safe assets.
SVB in turn did what most banks do and invested its customer deposits in a combination of loans and safe interest-bearing assets, such as US government bonds. But the withdrawals are overwhelming the deposits, and for a bank, that means it must liquidate the safe assets it holds specifically for this purpose.The bank’s safe for-sale assets are held in a portfolio of short-term safe government bonds.While there’s no chance these bonds will default, their face values have taken a hit as it becomes apparent the Federal Reserve’s inflation fight is not done yet, and interest rates are heading higher.
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