Good Morning!

Happy Monday 🌞 

Today’s article is brought to you by: 95% human and 5% AI 

Market Update

📉 Markets fell Friday after Silicon Valley Bank was shut down by California regulators and placed under the control of the FDIC (Federal Deposit Insurance Corporation).

🔴 🏦 Silicon valley Bank fell another 60% in the pre-market on Friday before trading on the stock was halted.

🔴 Signature Bank fell 22% Friday as fears of contagion spread - the bank was taken into FDIC receivership Sunday afternoon as customer requests for cash grew too large for the bank to meet.

Banger Tweet of the Day

It appears there’s been a run on Starbucks.

SVB Goes Under, Government Bodies Step In

I don’t even know where to begin.

Friday morning California Regulators shut down Silicon Valley Bank and placed the FDIC in charge of finding a new home for America’s 16th largest bank.

A quick explainer:

1. SVB was the primary banker for tech startups, and as a result, saw inflows increase 3x over the last few years.

2. Not knowing what to do with all its newfound customer deposits, they aped into 10+ year bonds yielding on average 1.63%

3. As rates shot up the value of those low-yielding bonds plummeted, slashing SVB’s asset base while their liabilities - customer deposits - remained roughly the same.

4. Word of SVB’s asset:liability mismatch reached customers who all rushed to withdraw their money at the same time.

5. SVB obviously didn’t have this money, so umm… the FDIC took them over on Friday.

another great explainer can be found here:

The risk became existential for companies who held a majority of their cash at Silicon Valley Bank. Customers of SVB - whom many are cash-burning startups - suddenly lost access to their money without the faintest idea if they would get it back.

The FDIC insures deposits up to $250K, which isn’t enough to even make payroll for most startups. As of Friday, customers expected to receive a certificate for all deposits over $250k. A certificate doesn’t pay the bills.

Government Rescues Depositors: Sunday night, the FDIC, Treasury, and Federal Reserve announced measures to backstop the banks and protect customer deposits. The measures:

• Guarantee all deposits for SVB and Signature Bank customers. Yes, a separate bank quietly went down Sunday night.

• The Fed & Treasury will also open an emergency lending window for banks to fund any additional cash requirements for customer withdrawals - helping to prevent any further bank runs.

The FDIC is auctioning off SVB’s assets and hopes to find a potential buyer asap.

Bullish: The measures taken by the Fed, Treasury, and FDIC appear to be enough to stem any further bank runs from taking place.

Meanwhile, the existential risk experienced over the weekend should give the Federal Reserve pause when it makes decisions on further interest rate hikes.

The rapid rise in interest rates was bound to break something in the economy, but you never know what will break until it happens.

Business Bytes

🏦 How Silicon Valley Turned on Silicon Valley Bank (WSJ)

• A fascinating read on how tech investors & operators caused a bank run at techs most friendly bank.

• It takes a lifetime to build a reputation and minutes to destroy it.

💰️ It wasn’t just startups who had money in SVB - Roku had half a billy in there!

✂️ Meta planning additional rounds of layoffs (WSJ)

• The layoffs are expected to be of the same magnitude of the round in November that trimmed ~11,000 workers.

🙏 Sam Altman, Vinod Khosla say they’ll personally loan cash to startups in the wake of the SVB collapse (Techcrunch)

• While the capital ultimately shouldn’t be needed due to depositor money being made whole today, many people in tech showed their true colors this weekend. Some fared better than others.

Today’s Challenge: Keep your money in your bank.

Thanks for reading, go out and make today a great one.

Much Love,

Andrew (and AI)