- Jim Costa
Dear Jim: Why Silicon Valley Bank failed.
Silicon failed, largely because: In the early years the start ups deposited cash about in 179B So whats a good bank going to do with the deposits – of course – invest them And they did indeed...in bonds yielding rates at the lower end of spectrum but What the market offered at the time………..
Then the unthinkable happened, unexpected and not planned for…. The start ups started with drawing or drawing down on funds (which is usually What start up businesses do – they simply spend more than is coming in while They are getting the business up and running) and about 79Billion was drained From the bank………..
In order to cover the lowering of the deposit accounts the bank was forced to Sell its bonds (only problem was the interest rate had increased then thus Everytime they sold bonds they lost money – ie: selling lower yielding bonds into A market where higher yielding bonds are the current market)
Over a period of about 1 ½ years the bank did not have a risk officer on its payroll………. Ie: no one was watching the hen house.
Then someone got cold feet ( one of the VC’s and warned his clients to move money (may of heard a rumor the president was dumping his stocks and selling his options!!!) And they did in mass over a few days) the bank was overdrawn at the end of one Night 1 billion and the rest is history.
Total complete mismanagement while an informed president who sit on the board Of the federal reserve in San Francisco allowed it to occur. This may have been a planned event……….