The US Banking Crisis

know when the bank charges us money for not having money but what happens when the bank itself doesn't have enough money well financially inquisitive friend that's when you have yourself a crisis at the time of this recording news had just broken of Silicon Valley Bank being taken over by the federal government this couldn't be worse timing given the failure of silvergate bank and Wells Fargo's recent

turmoil with consumer checking accounts showing negative some of these events are related some are isolated incidents but none of them are good for the economy but we'll get to all that later in the meantime don't forget to like subscribe and yeah okay let's start at the beginning here okay so to start Silicon Valley Bank is a bank in the San Francisco Bay area that specializes in

Tech startups the majority of SV DB's customers were startup Tech firms that gained funding from Venture capitalists and then deposited that into svb for Equity svb enjoyed Healthy Growth over the years particularly during the 2020 pandemic low interest rates and high volume really acted as the fertilizer for this growth they saw a massive uptick in deposits in 2021. now the way any Bank makes money is

to safely hold capital and then loan it out at interest or to invest the sums of said Capital into long-term Securities such as federally backed bonds when interest rates are low newly issued bonds pay lower returns than older bonds therefore making the older bonds more valuable so whoever has the older bonds makes money and can then turn around and charge customers lower interest rates on deposits

and then you keep the difference as profit this all works just fine since if a few customers need to pull their money out Banks can just sell some of the bonds to have of the cash on hand for these withdrawals the only thing that could mess up this fractional Reserve banking system is if everybody took their money out right at once and that never happens right

right picture a perfectly round snowball perched on the edge of a mountain all of a sudden that snowball starts to roll downhill it's getting bigger and bigger that snowball is the Federal Reserve raising interest rates to adjust for inflation Rising interest rates made the newly issued bonds more attractive lowering demand and prices for the old bonds normally this is no big deal as the bonds are

for the long term and as long as the banks hold them to maturity no harm no foul well in high interest environments credit becomes scarce meaning a lot of these Tech firms have to dip into their cash reserves to fund projects and again if the banks have enough liquidity to cover withdrawals no harm no foul but see what had happened was this turned out to be

a perfect storm for Silicon Valley Bank they had invested 80 billion of their new deposits into long-term bonds and since startups were the main clientele of svb they got hit the hardest with every large withdrawal they had to sell off some of their long-term Bonds on March 8 2023 svb announced that they were selling off their entire long-term bonds portfolio I mentioned Silver Gate earlier their

main source of Revenue comes from the cryptocurrency market and they were going through a very similar set of circumstances the Catalyst was the same the FED raising interest rates but they had a run on its Bank due to the FTX Fiasco silvergate had to sell their assets at a loss as well seeing these Banks going through similar panics at the same time made investors cautious and

then Silicon Valley Bank watched its stock price plummet by 60 percent in a single day svb made their announcement on March the 8th by March 9th customers had withdrawn get this over 42 billion from their accounts they hammered the bank so hard it crashed their servers the fact that customers couldn't get their online access to their accounts only led to more fear and those fears were

valid see the FDIC only insures accounts up to 250 000 which seems reasonable for most of us who I think it's safe to say usually have less than that in their accounts I know I do but svb being a tech industry bank had 97 percent of its Accounts at over 250 000. 97 guys makes you kind of wonder who those three percent are right broke losers

wait I'm pretty sure I just called myself a broke loser anyway I digress by March the 10th svb had halted trading of their stock because the price had fallen so far all in less than 48 hours you might be asking yourself at this point in the video how could something like this happen and it's a good question with a lot of answers we are finding to

be typical and ridiculous more and more these days digging deeper into the svb mess it was found out that the bank had no risk assessment officer for eight months prior to the crash yeah apparently dude up and quit and no one ever got around to filling that position from April 2022 to January 23. this was at a crucial time when the books needed to be rebalanced

given the interest rate hike oh and it gets even better svb's CAO Joseph Gentile used to um be the CFO over at Lehman Brothers during their collapse oh this is kind of like when your favorite football team hires a coach that went Owen 16 the year before and then you wonder why your team isn't any good but uh hey guess what it gets even better if

you don't at least to scoff at this next fact the very concept of irony has to be lost on you the Federal Reserve Bank of San Francisco supervises svb he you know who was on the board of that bank Greg Becker CEO of Silicon Valley Bank I just like you've got to be kidding me guys for perspective that's like LeBron James being on the NBA's officiating

committee now he gets to take seven steps before anyone can call traveling you see allegedly several high-ranking Executives sold off millions of dollars of shares prior to the collapse of svb now we must reiterate that it is unknown if they had any previous knowledge of the impending crash of the bank also on the sketchy side of things is the fact that svb paid employee bonuses hours

prior to the news of the bank's failure so it's good to hear about someone besides the CEO receiving a golden parachute allegedly Silicon Valley Bank by the way is currently being sued for fraud by its shareholders the main thing that the financial sector and all of its customers and investors can learn is that Regional banks are not as secure as we once thought most of these

Banks customers are small to medium businesses and if enough of these customers withdraw their cash from their accounts we can see another panic like the one we're examining today the rest of the banking system seems largely unaffected by this banking crisis in fact the larger Banks might get bigger as customers of the failed Banks could take their business over to them the regional Banks saw their

assets become seemingly worthless overnight but that wasn't the case the assets were bonds backed by the U.S treasury and had they held them to term everything would have been fine the problem lies in there being a run on the bank and then the banks selling assets to cover liquidity thus causing a panic big banks are way more Diversified than Regional Banks so they're not shocked by

large quantities of withdrawal so easily the industry that will feel the burden of this crash the most is tech companies svb held over 50 percent of tech companies deposits and 97 percent of them had accounts in excess of the 250 000 insured by the FDIC Roku Roblox Vimeo Etsy and Vox are among the companies affected by this crash this could be devastating to startups even President

Joe Biden had to address the public to reassure investors that the banking system was strong Silicon Valley Bank is now under the control of the federal government the FDIC has moved svb deposits to a newly formed holding bank and to Stave off a future bank failures the FED has instituted a Fail-Safe Banks can now sell their long-term bonds to the federal government without a loss the

treasury has also said that everyone affected by this collapse will be made whole without using taxpayer dollars in 2008 after the last Financial collapse the Dodd-Frank Act was signed into law to help curtail risk-taking Financial activities that led to the crisis almost five years ago to the day on March 14 2018 the economic growth regulatory relief and consumer protection act Exempted banks with less than 250

billion in assets from the Dodd-Frank Act allowing what happened with Silicon Valley Bank Silver Gate and other Banks to occur what's next for the U.S economy only time will tell hey thanks for making it all the way to the end of this video remember to like subscribe and turn that notification Bell on to keep up with all the richest content whether your money's in a savings

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