What are the causes of Sillicon Valley Bank (SVB) fallout?

My layman’s understanding is that the following sequence of events happened: - In 2021 SVB saw a mass influx in deposits, which jumped from $61B at the end of 2019 to $189B at the end of 2021. - As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital. As a result, they purchased a large amount (over $80B!) in mortgage backed securities (MBS) with these deposits for their portfolio. - 97% of these MBS were 10+ year duration, with a weighted average yield of 1.56%. - The issue is that as the Fed raised interest rates in 2022 and continued to do so through 2023, the value of SVB’s MBS plummeted. This is because investors can now purchase long-duration “risk-free” bonds from the Fed at a 2.5x higher yield. - This was NOT a liquidity issue as long as SVB maintained their deposits, since these securities will pay out more than they cost eventually. - Earlier this week they announced they would be raising additional equity capital, which spooked investors and depositors. - Some VCs began advising their portfolio companies to pull money from SVB (and started pulling their own money). - Over $40B in deposits left SVB in a 48 hour period. NOW it's a liquidity issue. - By Friday the FDIC stepped in the stem the bleeding, and put them in receivership. Hope this helps!

In very simple terms, SVB invested too much. Feds raised interest rates on the loan that were given at cheap rates back in 2020-21. Now that's where SVB fell in trouble. SVB's value dropped. SVB went on a trip to raise money but failed. Companies started pulling money back from SVB. SVB fell. Feds closed down SVB. SVB is dead.

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