The Rise and Fall of Silicon Valley Bank: What We Can Learn
Disclosure: As a licensed real estate sales agent and realtor, I must disclose that I don’t have a crystal ball, and I do not know what will happen tomorrow Monday when the stocks open. However, I want to share with you the latest breaking news that Silicon Valley Bank (SVB) has failed.
As a real estate sales agent and a licensed realtor, I would like to begin by disclosing that my expertise lies in the real estate industry. While I strive to provide informed opinions and insights, it is important to note that I do not possess a crystal ball, and I cannot predict what will happen in the stock market or any other industry in the future. As we approach the beginning of the week, I cannot guarantee any specific outcomes or provide investment advice related to the stock market. My focus is solely on the real estate market and providing guidance to those who are looking to buy, sell or invest in properties.
“What I do know is that Real Estate is the best hedge against inflation and uncertainty!” -Jose Cervantes
Silicon Valley Bank (SVB) was once a thriving commercial bank headquartered in Santa Clara, California. It was the largest bank by deposits in Silicon Valley and operated from offices in 13 countries and regions. Unfortunately, on March 10, 2023, it failed after a bank run on its deposits. This news came as a shock to many investors and homebuyers in the area.
The California Department of Financial Protection and Innovation (DFPI) revoked SVB’s charter and transferred the business into receivership under the Federal Deposit Insurance Corporation (FDIC). This marks the second-largest bank failure in U.S. history, and its insured deposits were moved to a new bank created by the FDIC, called the Deposit Insurance National Bank of Santa Clara. According to December 2022 regulatory filings, more than 85% of deposits were uninsured, which means that many customers may lose their money.
Despite this news, there is a silver lining. On March 12, 2023, a joint statement by Secretary of the Treasury Janet L. Yellen, Federal Reserve Chairman Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg stated that all depositors at SVB would be fully protected and have access to all of their money starting the following Monday, March 13. This means that if you were a customer of SVB, you can rest assured that your deposits are safe.
As a licensed real estate sales agent and realtor, I understand that this news may cause some uncertainty for investors and homebuyers in the area. However, I am here to help you navigate the current market conditions and make informed decisions. If you are looking to buy or sell real estate, I am available to discuss your options and help you find the right solution for your needs.
The failure of Silicon Valley Bank (SVB) has sent shockwaves through the banking and tech sectors. The bank failed in a rapid and stunning fashion when customers yanked $42 billion from SVB, leaving the bank with a negative cash balance of $1 billion. SVB and federal regulators could not raise enough capital to make up the difference, and the bank was declared insolvent on Friday. The Federal Deposit Insurance Corp. took control of the bank, and it has promised to pay customers their insured deposits on Monday, but only up to $250,000. The article published by CNN has asked the question, “What’s the next Silicon Valley Bank — and how can the US prevent more chaos?”
When the markets are volatile, and the feds raise rates rapidly, there is a high risk for banks and other financial institutions. This blog will discuss the risks that banks face during market volatility and how to prevent further chaos like SVB’s failure.
The Risks Banks Face During Market Volatility
Banks are at risk of failure during market volatility due to their reliance on short-term funding. During normal times, banks rely on short-term funding to finance their long-term loans. This system works well when interest rates are stable, and liquidity is high. However, during times of market volatility, the opposite is true.
When markets are volatile, interest rates can change rapidly, and banks must scramble to adjust their rates to stay profitable. This can cause a liquidity crunch, where banks have trouble raising the short-term funds they need to continue lending. If banks cannot raise enough capital, they can fail, like SVB.
Another risk for banks during market volatility is the increased likelihood of customer withdrawals. When the market is volatile, customers may panic and withdraw their funds, causing a run on the bank. This can quickly deplete a bank’s cash reserves and cause it to fail.
Finally, banks also face the risk of a loss in value of their investments. During market volatility, the value of stocks and bonds can decline rapidly, causing significant losses for banks that hold these assets. If banks are heavily invested in these assets, they may suffer significant losses, leading to their failure.
How to Prevent Further Chaos Like SVB’s Failure
To prevent further chaos like SVB’s failure, banks must take steps to reduce their risk during times of market volatility. Here are some of the steps banks can take to prevent further chaos:
- Diversify their portfolios
Banks must diversify their portfolios to reduce their risk during market volatility. By holding a mix of assets, banks can reduce their exposure to any single asset class. This can help to reduce the impact of any losses on their portfolio.
- Manage their liquidity
Banks must manage their liquidity carefully to ensure that they have enough short-term funding to meet their obligations during times of market volatility. This may mean reducing their reliance on short-term funding or holding more cash reserves to weather any liquidity crunches.
- Monitor market conditions
Banks must monitor market conditions carefully to stay ahead of any changes in interest rates or other market conditions. This can help them to adjust their rates or portfolios to reduce their risk during times of market volatility.
- Work with regulators
Banks must work with regulators to ensure that they are complying with all regulations and best practices. This can help to reduce their risk of failure and prevent further chaos in the financial sector. Fact remains, SVB CEO Greg Becker lobbied the government to relax some Dodd-Frank provisions on regional lenders in 2015. Trump did just that in 2018. https://en.wikipedia.org/wiki/Dodd%E2%80%93Frank_Wall_Street_Reform_and_Consumer_Protection_Act
- Educate customers
Banks must educate their customers about the risks of investing and the importance of diversification. By educating their customers, banks can help to prevent panic withdrawals during times of market volatility, reducing their risk of failure. We need more regulation, not less. Bernie was right then, and he is right today, https://www.youtube.com/watch?v=vQE9r5K2oNA
Honestly, I am not sure how all this will play out. The failure of Silicon Valley Bank has highlighted the risks that banks face during market volatility and the unprecedent Fed hikes; increases that had a direct cause of this miscalculation. To prevent further chaos we all must remain calm.
In conclusion, the failure of Silicon Valley Bank may have shocked the financial world, but it is important to remember that every investment carries risks. While no one can predict the future, it is important to stay informed and make informed decisions based on reliable information. As a real estate sales agent, I am here to offer my expertise and help guide you through the process of buying or selling property. Despite the recent events, the real estate market remains strong, and there are still opportunities for those looking to invest. Let’s work together to make your real estate goals a reality.
March 12, 2023