Hey everybody welcome back to whiteboard Finance my name is Marco and I'm here to Help you master your money and build Your wealth and potentially stuff your Cash in a mattress or in the drywall of Your house maybe even bury it in your Backyard Uh all joking inside this video is Actually about the Silicon Valley Bank Collapse we're going to explain how it Happened we're going to talk about the Bank run we're going to talk about the Losses and we're going to talk about the Bailouts as well so as always a nicely Formatted slide deck for you there's a Ton of slides there's about 32 slides in This presentation actually a little bit Less so I'm going to try and fly through These so feel free to go backwards in This video a lot but please watch until The end because there's some breaking News this is being recorded on Monday Morning so uh you can see right here Let's start with the overview you can See robust client Funds growth over long Term so you can see that this starts Basically in the 2000s and it goes all The way until 2022. so you can see that Silicon Valley Bank was the 18th largest Bank in the United States much of the Recent deposit growth was driven by Clients across all segments obtaining Liquidity through liquidity events such As IPOs secondary offerings SPAC
Fundraising VC Investments Acquisitions And other are fundraising activities Which during 2021 and early 2022 were at Notably high levels so this is basically That's a quote in the 10K from their Most recent filing it is a publicly Traded company that's a direct quote From their 10K this is basically the Go-to bank for Silicon Valley many VC Funds and startups they bank with Silicon Valley Bank however it's not Just geographically tied to Silicon Valley there's people that have startups All over the country that bank with them Okay so you can see that they did Business with basically 50 percent of All U.S VC backed startups and their Deposits tripled from 2019 all the way To 2021 which you can see right here the Funny thing is take a look at the red Arrow Um Silicon Valley Bank was just they Just tweeted now their Twitter account Is actually deactivated it doesn't exist Anymore it says proud to be on Forbes Annual ranking America's best banks for The fifth straight year in a row that Was on March 6th uh just three days Before everything exploded okay so how Did this all start so we had a massive Influx in deposits as we saw in the Previous slide from basically 2019 until Now and you have to put it somewhere so A bank isn't just somewhere that you
Lock up your money you guys that's That's a very naive way of thinking of How Banks make money Banks make money by Taking the funds that you give them they They give you an interest rate so in Your savings account it could be 0.01 Percent you're essentially giving the Bank free money and what the bank does With that money your money is they make Loans we call this fractional Reserve Banking a bank doesn't need to have One-to-one deposits to make these loans So say for example I'm Marco I go to my Bank and give them a dollar the bank Doesn't need to have my Dollar in Reserves to be able to loan out a dollar It only has to have one tenth of that so For every dollar they have in their Deposits on their balance sheet they can Loan out 10. that's called fractional Reserve banking so this massive influx They had to put it somewhere and I'll Show you in about two slides here where They put that but silicon Valley bank Then have the capacity to make loans at The same rate as the deposits inflow Came in and then what happened was the FED cut rates so t-bills basically paid Nothing which you can see that this red Arrow right here that's what they were Heavily invested in which I'll show you In the next two slides here so all was Good so you know you have the mainstream Media AKA corporate media they're
Basically just saying don't worry about Inflation and inflation fear alerts even As officials say not to worry uh and Then Powell downplays inflation risk as Janet Yellen for Shadow's future Spending so what happens is this is Their purchase this is where they Essentially messed up so Silicon Valley Bank had more than half its assets and Treasuries and agencies so basically you Can see they had 108 billion dollars in Treasure treasuries and agency bonds This is typically a long duration Mortgage-backed Securities that's what MBS stands for and then long duration Have higher interest rate risk right so When you get locked into these products Like uh like a 10 T bill for example or A bond or a mortgage-backed security That by the time they come to maturity Who knows what interest rates are going To do and in this case we've seen the Fastest interest rate hike in almost in 40 years basically under Jerome Powell Here so that basically blew up their Balance sheet so they had greater than 80 billion in mortgage-backed Securities 97 percent uh was with 10 plus year Durations with a weighted average yield Of 1.56 okay so Silicon Valley Bank had An outside portion outsized portion of Its assets and its Investment Portfolio Most of any U.S Bank so what happens so Inflation reaches 40-year highs as I
Just mentioned the FED is forced to Raise rates because what they're trying To do is they're trying to combat Inflation so when inflation runs rampant You raise rates you slow down the Velocity of money you increase the cost Of borrowing capital and this is how you Typically combat inflation but there's Usually inverse correlation between Interest rates and bond prices that's Why people always talk about the 60 40 Bond portfolio sixty percent equities 40 Percent bonds right okay so moving on so The losses start to pile up so you can See down here uh you can see the Timeline uh basically the over the last Few months you can see exactly what this Has been doing so this is the net Unrealized losses so this says sivb That's just their ticker symbol that's All that means but basically silicon Valley's Bank unrealized losses on its Bond Holdings started to absolutely Skyrocket at the same time the Venture Capital drought began so the Slow Burn Begins so what you can see here is you Can see how right around quarter four of 21 you can see that they're a quarter Over quarter period end change uh Started to actually go negative you Could which you can pause this chart and Actually read these definitions but this Is a very long slide deck so I'm trying To get through this but basically
Venture capital investment declined as Rates increased less funding meant Startups had less cash to spend client Ashburn was two times higher than Pre-2011 or 2021 excuse me and has not Adjusted to slower fundraising So this is where the pain starts so Silicon Valley Bank had two times the Sensitivity to rates than most banks Um usually Banks assets benefit from Higher rates actually higher rates meant Higher net interest income however for Silicon Valley Bank higher rates Decreased the value of its long-term Debt Securities the ones that they were Locked into and also decreases the money Invested in Venture Capital which means Less you know funding less Easy Money uh Less deployment of capital if you will Which means lower supply of cheap Deposits so when you see these higher Interest rates decreasing the value of Their debt Securities it also means less Supply of cheap deposit funding due to Less venture capital investment okay so A Silicon Valley Bank essentially had no Interest rate Hedges as you can see Right here So they're forced to take major actions So they're forced to sell 21 billion Dollars of its asset Holdings to Increase liquidity as client deposit Outflows increased so basically if you Go to my Instagram I posted a video of
The Simpsons where Bart blocks into the Bank and he goes there's not enough Money to pay out the customers there's Only enough money for three customers Left and he basically starts a mini run In the bank it's kind of funny go check Out my Instagram if you haven't seen That so basically uh this money is Starting to be taken out it's almost Like a mini run on the bank uh almost Unintentionally but however they also Needed to raise additional Capital to Offset the 1.8 billion in realize losses Which spooked many uh depositors and Venture capitalists and then they Started to go on Twitter they started to Tell their buddies they started to speak On Twitter which only perpetuated the Problem even further so I'm not going to Go through all of this just pause the Screen if you want to see the Information on this slide So the freakout begins so classic Zero Hedge I've been following Zero Hedge Since I was like 18 years old it's been Around forever Um you can see right here on March 9th They started to tweet Founders uh fund Advises companies to withdraw funds from Svb okay that's what started that uh Perpetual downfall if you will and then Y combinator said to advise companies to Limit svb exposure so these are notable Venture capitalists such as y combinator
Peter Thiel they're urging their Companies to withdraw investors and Depositors initiated 42 billion dollars Essentially a quarter of all deposits That withdrawals in one day svb stock Tanks 70 in just two days So the contagion spreads out spreads Outside of venture capital you can see Here these are all different companies That bank with svb my buddy actually Texted me the other day they have about 180 million with them Um they're not on this list Um but maybe that's just because people Don't know but my buddy works for a Startup that has about 180 million with Them so and you can see coinbase they're Temporarily pausing usdc which is a Stable coin pegged to the US dollar uh Conversions over the weekend while banks Are closed during periods of heightened Activity conversions rely on USD Transfers from the banks that clear During normal banking hours when banks Open up on Monday we plan to recommence Conversions this is March 10th and you Can see essentially what's happening Right here with usdc it's actually De-pegging it's supposed to be one to One which you can see the dollar right Here it's actually falling even further Than 94 cents in that screenshot So this spreads to uh crypto you can see Circle uh their liquidity losses could
Be 3.3 billion uh it'll be confirmed Immediately if that happens uh there is Light at the end of this tunnel so stay Until the end of the video uh this means That 3.3 billion dollar cash Reserve Loss will completely turn usdc which is A stable coin it's supposed to be one to One to the US dollar into a company with Net assets of negative 3.2 billion so uh What happens here is the FDIC which we All know I've been talking about this on My channel for a long time typically Depositors so you and I regular people Have our money in Banks they have Insurance up to 250 000 and you'll see What happens at the end of this whole Debacle here we're creating the slide Deck I want to say starting on Friday And then we had to keep updating and Updating updating it and now it's Monday So it to make updates to it at the end Here so stay until the end so FDIC could Potentially take over Silicon Valley Bank they ensure up to 250 Grand but Since most clients are VC back startups Only 2.7 percent of deposits are insured So you have to realize a lot of these Companies have way more than 250 000 Sitting in each of these accounts so There are recent developments that Concern a few banks that I'm monitoring Very carefully Janet Yellen so at the Time so this guy's saying this is an Extinction level event for startups and
Set startups it'll set back Innovation By 10 years or more a lot of this is Fear-mongering a lot of this is you know You know is getting up in the town hall And just speaking your mind I get that But this perpetuates obviously Fear-mongering but what you will see at The time this recording there's actually Three or four banks that are now Completely insolvent out of business and Then there's about 36 more that are Halted in trading and these are huge Banks I used to work at Key Bank in Cleveland Key Bank is one of them it's a Huge Bank publicly traded so the FDIC Government takes action you can see Right here as of Monday or Sunday night This is actually announced FDIC fully Protects depositors and all deposits Will be made whole this is a good thing In my opinion so why is that a good Thing think about it logically you guys So I'm not saying that Banks should be Bailed out this is not these aren't Banks necessarily being bailed out it's The depositors I think the people who Invested in these stupid things uh tying Up the bank's money for these long Durations should absolutely feel the Pain should absolutely have Repercussions come to them because That's free market capitalism uh it's Kind of like the forest fire cleansing The forest uh Burning Down the trees but
Then you return all the nutrients via The burning into the soil if that makes Sense so this is a good thing because Think about it if you're just a startup If you're just a random person and let's Just say the Midwest as a startup who Bank with them or you're banking with Silicon Valley Bank you know as a Depositor you shouldn't be expected to Be able to run through balance sheets And do forensic accounting on these Institutions where you think you're just Holding your money in right that makes No sense as a random depositor you know Sam mechanical engineer and I don't know Much about Finance for example I'm just Making this up you know why would it be Why would it be on me to look up all This stuff on these financial Institutions where I'm just trying to Open up a savings account with right so That's that's kind of like my stance on This so the FED announces new programs That relaxes lending to Banks you can See that right here uh FDIC shuts down Sbny a New York bank with large exposure To crypto and then Goldman Sachs Believes no rate hikes in March due to Stress in the banking system so at the Time of this recording I believe HSBC Bought silicon Valley's UK arm but you Can see that the markets are spooked so You have bank failures in each year by Total assets so you can see here this
Was an 08 look how big that is that's uh Almost 400 billion in assets right here Where my laser pointer is there was big Ones there was uh 32 billion in Indie Mac 307 billion in Washington Mutual That's WAMU there's a good interview With him on valuetainment's Channel with The CEO uh and then you can see you know Declined and it pretty much tapered off In 2013 and on almost non-existent in 2122 and then 209 billion uh Silicon Valley Bank which is crazy it's uh Banks Worst week since March of 2020. So if we keep going are all banks in Trouble so you look at the big four Banks I have money with Schwab um I know A lot of people bank with JP Morgan you Know Bank of America Wells Fargo you can See Regional banking pressure this is Literally the biggest banking collapse Since the great financial crisis is this Going to spread into other Banks so Pause these slides take a look at these Metrics and then running a bank is hard So planning A bank's funding and Investments in a way that is both Prudent and profitable is complex and Challenging at the same time especially When interest rates change to the extent They have over the past year unrealized Losses weakened A bank's future ability To meet unexpected liquidity needs so You have to realize this this is from The FDIC chair saying this okay and I
Have all the sources in these slides you Guys I'm not just making this up but What you have to realize is guys banks Are lending institutions they make money On the spread okay we have the federal Funds rate that is set by the fed you Have the money that is loaned to Commercial Banks okay from the fed and Then you have they get us at a an Interest rate and then they lend it to Marco Joe Mike Stephanie Kelsey whatever I'm just making up names Um at a higher interest rate they make The spread that's the Arbitrage so when You give your money uh to a bank and They're giving you 0.01 percent you're Saying here you go Mr Bank go make money On my money because I'm an idiot okay That's essentially what you're doing so You have to realize these are Institutions that invest they're not Just sitting there protecting your money Uh in their brick and mortar shops right A lot of stuff is digital so you see the Outflows from Banks start to pile up so You can see here where that red dotted Line is this chart is showing the Deposit outflows are very rare at U.S Banks but in 2022 they became the norm People are starting to take out their Money you can see the competition for People's money heating up this is the Spread between money market mutual fund Rates and Bank deposits I just did a
Video on this last week you guys I hope You locked in your high rates in that Video this channel is always ahead of The curve I'm just going to give myself A little Pat in the back there huh so You guys can hear that Okay good job yeah we we're locking in Uh six month t-bills at 5.1 percent now They're dropping almost 100 basis points At the time of this recording so Banks Lose deposits as people search for yield So you can see here that the money Market funds annual assets under Management growth has picked up recently You can see the black line is or the um Dark blue line is the year-over-year Change in assets under management the Light blue line is the Fed funds rate Again that that's the interest rate that The Federal Reserve sets and you can see Households and non-profit organizations Treasury Securities at the asset level Are going back up again just as I've Been mentioning in my videos So big Banks aren't immune this is the U.S long-term nominal this is before Inflation Bond total returns since 1973. Uh 60 40 portfolio is getting crushed Last year you guys look at this this is One of the long this is actually biggest Loss that I can see on this chart and This chart goes all the way back to 1793. uh and then you can see the big Four Banks net unrealized losses
Um you know skyrocketing right here over The past year or so So who could be affected so big banks Have strict risk management protocols They should be fine however Regional and Small banks have the highest risk of Trouble because of the way they're Structured so when you think of like Regional or small Banks think of like The bank that's local to you uh your Community bank or banks that you just See you know around town they have brick And mortar shops they're not necessarily These huge behemoths like you know a Capital One or like a Schwab or Something like that for example so the Small Bank Reserves are low or as low as They're going to go drying up a source Of funding for loans you can see that Right here small banks are more Dependent on loans for income as a Percentage of deposits you can see that Right here black line is large Banks Blue line is small Banks and I apologize If I'm kind of going through this quick There's just so many slides there's so Much to cover in this and I want to do This um topic Justice I don't want to Just make like a fear-mongering click Bait video uh small banks have the Greater concentration of loans in Commercial real estate this is true a Bank just one of the three Banks I'm Talking about literally just became
Defunct they had a huge exposure Um to commercial real estate and then You can see the bank runs start as People get worried these aren't Literally Bank runs I mean at it could Be for svb but this isn't necessarily A Contagion around the country but you can See these are real pictures this is First Republic Bank this is California Their stock is absolutely getting Crushed right now uh and then you can See Twitter heating up so the pretty Prominent figures Andrew Yang Naval this Is a story of Lindsay she's a Columbus Ohio native she's a mother of four she Employs a team of 15 as a startup Founder and she was banking at svb uh Same thing with Balaji there's a bunch Of people kelikanis Bill Ackman uh you Name it you know every you know Mark Cuban uh it's kind of funny when all These billionaires who I'm sure have a Ton of exposure to this Bank you know They start typing in caps lock and Saying bail out the banks we gotta save This we gotta save that well dude it Reminds me of like 2008 tarp uh when all The you know billionaires were trying to Get their butts saved with the bailouts It's kind of funny So Silicon Valley bank is in a unique Situation most banks have customary Diversity but not necessarily Silicon Valley Bank most banks benefit from
Higher rates but not Silicon Valley Bank Most banks have Diversified assets but Not Silicon Valley Bank so you can see Here U.S bank loan to deposit ratios uh Y-axis eighty percent zero to eighty Percent x-axis 70 to 120 percent you can See how over leveraged they are higher Risk deposit base we're down here JP Morgan's over here you can see the Different different groups right there All you can do is pause pause the screen So how can you position yourself as Always my videos provide value not Fear-mongering know how FDIC Insurance Works the standard Deposit Insurance Amount is 250 000 per depositor per FDIC Insured Bank be like Giannis Giannis Antetokupo Um very Greek last name uh he he Actually has uh his money and I think Like 50 bank accounts that's not an Exaggeration uh but he's also from Greece if you remember the Cypress Balance in 2012 2013 my cousin's cousin I know that sounds like my buddy's buddy At the locker room literally my cousin My dad's Um my dad's cousin's son so he's like my Second cousin but he's my cousin his Cousins live in Cyprus and they they Know all about 2012 2013 when you your Money was actually getting bailed into The bank you couldn't take it out okay So Giannis is from Greece they had a
Crisis as well that's probably why he Does that number two consider moving Some savings from Banks into money Market funds and treasuries uh why have A bank is your counterparty when you Have the U.S treasury and then stay calm Bake runs happen every time someone's They panic at the same time and then Finally I just want to show you this Quick screenshot from January of 2022 It's about 14 months ago I said when the Market was getting crushed last year I Said the most interesting takeaway from Today is that the FED is still doing Quantitative easing and this is what the Market is doing the real fun starts when They stop quantitative easing and start To raise rates uh and then I said again My gut feeling says that they don't have The ammunition to raise rates without Crashing the market there are three rate Hikes planned for this year we'll see we All know what would happen after that uh High fastest rate hikes in 40 years Market crashes the FED is the market you Guys it's so easy everything's related To interest rates interest rate up asset Prices down interest rate down last 14 Years where everyone looks like a genius All asset prices goes up all you have to Do is understand the game and play it Okay so um diversify I've been talking About different ways to invest over the Past couple weeks t-bills money market
Funds dollar cost average into equities Uh save some dry powder for big events Uh when some of these businesses go Belly up uh also uh commercial real Estate you know a lot of these a lot of These syndicators they took Um loans that are just floating rate Okay there's no fixed rate when these Rates get hiked up and the rent can't Pay for all the uh Capital expenditures Uh The Debt Service you know all that Stuff after noi your net operating Income gets smoked what do you have to Do you have to sell those assets uh once They become distressed for pennies on The dollar this is how zam's Sam made His whole money Um buying distressed assets I I'm Reading his book called um am I being Too subtle it's a great book so my Thoughts I don't know I mean do I think There's gonna be a huge Bank Run you Know on multiple Banks probably not uh If this would have happened to some Bank In the mid Midwest uh say some Bank in The middle of a cornfield in Kansas or Something would it be all over Twitter With these VCS like uh you know uh Calacanus and then you have like these Hedge fund managers like Ackman and you Know Cuban and all them you know Sounding the horns on Twitter because They have hundreds of thousands of Followers would it be as big of an event
As this is probably not would anyone Care probably not so that's the harsh Truth of it so um do I support the Depositors getting their money back of Course as I mentioned in the middle of The video they shouldn't be expected to Do a forensic accounting when they're Just trying to hold a savings account do Most people even have over 250 Grand Sitting at one institution or One bank Account probably not so hopefully all Those people are made whole and they Will be based on the FDIC information That I just told you at the in the Middle of the presentation so as always I hope hope this video is valuable only You my audience who knows how good this Content is I put a lot of work into this Content please share it the only way People are going to discover my content Is not through the algorithm anymore It's going to be through you sharing it And liking the content and leaving a Comment down below uh stay tuned for Whiteboard Finance University check out The link below to join the waiting list We have four professors stocks ETFs real Estate and personal finance and Budgeting plus weekly live streams with Me if you want behind the scenes content Or private access to me it's it's Priceless but not only that it's an Expanding library of financial Information new videos every week it's
Literally like a gym membership except For your brain related to finance to Help you master your money and build Your wealth all right thank you Everybody thanks for watching yo check This out so I actually called the FDIC Hotline Look at the first prompt Should I go through the phone call Nah this video is long enough
