Last weekend, SVB, a Silicon Valley bank in the United States, closed its doors. The 2th-largest bank in the U.S. with $090 billion in total assets went bankrupt in just 16 hours. This was followed by news of the bankruptcy of the U.S. Signature Bank.
The SVB bankruptcy is the second largest in U.S. history, the first being Washington Mutual, which collapsed during the 44 financial crisis. So, naturally, the past financial crisis, commonly referred to as the Lehman crisis, was summoned.
In conclusion, it is true that the financial company collapsed due to insolvency, but the cause is completely different.
What's different?
The 2008 financial crisis was triggered by poor mortgages. At that time, as the United States maintained an ultra-low interest rate stance, real estate prices soared. As real estate prices rose, huge amounts of money came in from individuals and financial companies in the United States, as well as from overseas.
However, it wasn't managed at all. "No proof loans" that didn't go through the screening process hit the market, and loan products with the phrase "no need to prove income" were even sold. It would have been a good thing if it had ended here, but a securities product made by bundling these loans was sold on the market, and even an insurance company (AIG) appeared that offered to compensate you unconditionally if the product lost money.
However, when bubbly real estate prices plummeted, the "party" ended, triggering the Lehman crisis as financial firms collapsed in a row. 'Distressed' assets have rattled economies around the world.
The reasons why Silicon Valley banks collapsed are completely different. The bank has operated by accepting deposits and lending to Silicon Valley startups and the investors who invest in them. The problem is that I haven't found a good place to invest the money I received as a deposit.
So what I found was U.S. Treasuries. The interest is about 1%, but I bought it with peace of mind because I would not lose money as long as the United States did not fail. However, problems arose when the U.S. central bank raised its benchmark interest rate at an unprecedented rate.
To explain a bit more
Think of it as largely inversely related to the benchmark interest rate and the price of Treasuries. When the U.S. central bank raised its benchmark interest rate to 1.3% per annum for the first time in one year and three months, Treasury prices plummeted. If it's over here, that's fine, but the problem has escalated in the wake of the recent recession, when cash-strapped tech companies said, "Give me some money back."
Silicon Valley banks mainly bought long-term Treasuries. As an ultra-safe asset, you can simply wait and recover your old price. But those who deposited their money in the bank did not wait. From the bank's point of view, I bought an apartment in Gangnam, Seoul, for 4 billion and was going to wait for it to go up soon even if it fell by 75~10 million, but suddenly the moment came when I had to sell my house at a low price.
When news of the bank's insecurity came out, customers demanded their money back, and the bank threw away its government bonds at a loss, leading to bankruptcy.
One more step
After all, if the Lehman crisis was about "bad" real estate loans, the Silicon Valley bank debacle was about "safe" U.S. Treasuries. For this reason, the mood in the market is that a major crisis like Lehman will not come.