Thread by @TBakerBroadmoor

What happened at Silicon Valley Bank is much more a “banking” story than a “tech” story. @SVB_Financial has been, for 30 years or more, a vital cog in the #startup and #vcfunding scene nationally and internationally. That’s not going to change. 1/6

Investment is still happening in areas like climate tech and AI and the bank will be supporting those new companies.
Its diversification and ability to raise capital to deal with its ALM problems differentiate it from a bank like @silvergatebank. 2/6

But...Silicon Valley Bank's fortunes, and its stock price, have always waxed and waned with tech cycles. This tech cycle was “supersized” in that it lasted for more than a decade and valuations were sky high even by the standards of past booms. 3/6

That meant spectacular deposit inflows to the bank, which expanded its geographic reach substantially.
In contrast to past cycles, the bank couldn't push customer balances out into money market funds to reduce deposit outflow ALM risk, because #MMFs were unattractive in the 4/6

Fed's artificially low rate world. That means the bank's deposit base and ALM exposure was many multiples of what it was in past cycles.
All those deposits were effectively cost-free to the bank and were invested in the securities portfolio for a safe yield—safe that is, 5/6

until rates started to back up rapidly as the Fed reversed years of accommodative monetary policy. Then the bill came due.

So the solution was to bite the bullet, dilute the common shareholders but improve forward-looking earnings prospects. #banking #liquidityrisk 6/6