About the collapse of SVB.

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What is SVB? 

In 2020 money got cheap: zero interest. A lot of money was pumped into tech companies (like startups) from VCs (venture funds), private investors and the stock market. I see that many such startups kept their money at SVB.    Startups were flooded with cheap money (from investors) which they deposited at SVB.                                                      Accountant, for a bank, its customer's deposits are a DEBT and it has to place that money in an ASSET to balance the financial situation. SVB places that money in .... US government securities for quite long terms because the interest rates in 2020 were very low in the short term and a bit higher in the long term.                                                                          However, inexplicable how they had such a large exposure to long term government bonds (much riskier) for such a small return (low interest anyway).        Inflation is coming, in 2021 interest rates start to rise. Long-term government bonds devalue massively (a government bond with a term of more than 10 years falls in value by tens of percent at an interest rate increase from 0 to 4.5%).    Startups burn cash in their business and take money out of the SVB as they have increasing needs.                                                                                                                                  The SVB had a lot of money in long-term government bonds - if it doesn't sell them, it loses nothing; if it sells them, it loses billions - according to bank-specific accounting rules.                                                As depositors (startups) keep burning cash and withdrawing money, SVB sells out of government securities at big losses (over $2 bn) and ends up in the situation of needing to borrow back to meet these withdrawal demands. The moment SVB announces that it wants to raise some USD 2.5 bn in funding, panic sets in the market about the bank's solvency.                                                                                                                 VCs (venture funds that are shareholders in dozens and hundreds of startups) send out notices to startups that SVB is on the hook and to withdraw their money immediately. Within a day- over $40 bn is withdrawn from SVB - and, obviously, after such a shock, collapse occurs. That's how I see it.

The downside is that many banks have a problem with massive devaluation of government securities held.

The good part?                                                                                                             The good part is that the big banks are diversified by economic sectors and are not focused on one massively affected sub-sector (tech startups) like SVB was.

Consequences will follow ... a first consequence, I think, could be a tempering of the interest rate hikes announced by the Fed - but what do I know what's on Powell's mind?

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