Silicon Valley Bank isn’t like any other bank; it deals directly with new and promising startup companies, particularly technology companies.
Stay until the end, because in this video we are going to show you what happened with the closure of Silicon Valley Bank.
The bank failure occurred by accident, but it was long expected.
Last year, the U.S. Federal Reserve implemented a series of highly aggressive monetary policies.
To fight against the rising inflation rate, the U.S. central banks increase their key interest rates by an average of 50–75% at each meeting.
The central bank’s reaction and plan to combat inflation were late, and inflation’s effects on the global supply market were already devastating.
So how did we really get here?
Silicon Valley Bank primarily serves startup companies in the technology industry; therefore, it may be more vulnerable to higher interest rates than other banks.
This is because many of its clients are early-stage companies that may have limited cash reserves and be more sensitive to changes in borrowing costs.
So, the SVB was really planning for long-term investments by buying billions of dollars worth of bonds over the past couple of years. However, the Russian military operation and the start of the war changed everything.
The war had added to the inflationary pressures, and the market burned with higher prices on a global scale. With higher consumer products and higher interest rates, venture capital funding starts to dry up.
The same companies have forced the Silicon Valley bank to sell its bonds to fulfill its start-up companies’ financial needs, and the worst part is to sell them at a loss.
Higher interest rates can have a range of effects on the financial markets, including Wall Street. One of the most direct effects is on bond prices.