Silicon Valley Bank knew the tech industries in a bad place and they knew the burn rates were going higher and the tech companies can’t raise capital fast enough to replace dwindling deposits. They were managing this and have been for over a year now.
But it is never the problem you know, when you are flying close to the sun. It is the unexpected problem that burns your wings.
That was when T-Bill rates hit 5%, all the yield seeking accounts, and yes, they were enough to matter, started leaving for money markets and T-Bills. That pushed their deposit bleed to the point that forced them to sell securities take a loss and announce a capital raise … which freaked everybody out (SVB stock down 61% Thursday).
And, as this chart shows, THIS IS A PROBLEM FOR ALL OF BANKING, not just SVB. All banks thought they could offer 0.50% deposit rates (orange) forever and no one would ever move.
If the Fed does not cut rates, that means banks have to raise the yield they pay out on deposits to close the spread. Or just keep bleeding deposits for non-bank alternatives like money market accounts and T-Bills via Treasury Direct.
And letting deposits bleed out means flying closer and closer to the sun. And we saw what happens when you do that something unexcepted happens.
But it is never the problem you know, when you are flying close to the sun. It is the unexpected problem that burns your wings.
That was when T-Bill rates hit 5%, all the yield seeking accounts, and yes, they were enough to matter, started leaving for money markets and T-Bills. That pushed their deposit bleed to the point that forced them to sell securities take a loss and announce a capital raise … which freaked everybody out (SVB stock down 61% Thursday).
And, as this chart shows, THIS IS A PROBLEM FOR ALL OF BANKING, not just SVB. All banks thought they could offer 0.50% deposit rates (orange) forever and no one would ever move.
If the Fed does not cut rates, that means banks have to raise the yield they pay out on deposits to close the spread. Or just keep bleeding deposits for non-bank alternatives like money market accounts and T-Bills via Treasury Direct.
And letting deposits bleed out means flying closer and closer to the sun. And we saw what happens when you do that something unexcepted happens.
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