Thread by @realCEOofANTIFA

🧵🧵THREAD about the banks🧵🧵

Incase anyone is still confused as to what happened with Silicon Valley Bank, Signature Bank, and the entirety of the banking sector, I decided to create a thread detailing the collapse and the backstory 👇🏼👇🏼

#SVBCollapse #BankingCrisis

Commercial banks exist for people to deposit their money so that the bank may use it to make their own investments.

The difference between the interest you earn on your deposits (currently 0.2%) and the rate of return the bank earns on their investments is the bank’s profit

Private Banks, just like ANY OTHER PRIVATE COMPANY, exists to serve their bottom line, first and foremost… above all.

…regardless of what the on-paper rules say about fiduciary responsibility

In the past, commercial banks had to maintain some portion of their deposits in reserve (fractional reserve banking). However, in 2020, all reserve requirements were scrapped… meaning banks no longer required to keep any of their deposits in cash, and can invest all🚩🚩🚩🚩🚩🚩

Every bank has a different investment strategy, however, in SVB’s case, they VERY HEAVILY invested in new start ups, and private equity… essentially acting as a VC firm (more 🚩🚩🚩🚩🚩)

Of the $209B in deposits at SVB:

-92% were over $250k

-44% of private equity firms that IPOed in 2022 were SVB clients

-88% of current major startups are SVB clients

-56% of loans went to VC and private equity

-majority of tech sector & life science startups are SVB clients

Venture capital, and private equity are some of the MOST illiquid, and riskiest investments you could make.

Over 80% of new startups sooner or later end up FAILING… and that is during “GOOD TIMES” (we are NOT in good times right now)

However the new startups that succeed do so with flying colors which far outpaces any loss from the majority that fail.

This makes Venture Capital extremely profitable, but also extremely risky… yet this was SVB’s core strategy

The Dodd Frank Act introduced new rules which limited how much commercial banks could invest in VC and other risky investments (The Volcker Rule).

Not only has the rule been slowly eroded over the years… but SVB was EXEMPT from abiding by what little remained of it (🚩🚩🚩🚩🚩)

As I mentioned earlier, 80% of new startups end up failing… DURING GOOD TIMES.

It doesn’t take a genius to figure out that we are not living in “good times” atm, therefore many more startups are expected to fail

As a result… many more VC investments by SVB will fail… and the existing deposits from private equity and new start ups will also reduce in size dramatically as they try to withdraw their funds to maintain liquidity

SVB is also, unsurprisingly, the bank for many firms in the tech sector.

The tech sector in particular has been badly hit over the past few months… which led to mass layoffs, and dramatic downsizing.

As a result, they also had to withdraw their funds from SVB

A bank, at the end of the day, should be able to give out loans, and enable clients to make withdrawals.

This becomes difficult for the average-Joe client when major clients pull their money out.

At this point, the only thing SVB can do is sell the remaining assets they have

The remaining assets they had were primarily government bonds.

The problem with bonds is not that they are risky, but they have an inverse relationship with interest rates… meaning: as interest rates go up, the value of bonds go down.

In order to curb inflation, the fed raised interest rates consistently for the past 8 months. This dramatically caused bond prices to fall.

In order to satisfy client withdrawals, SVB had to sell bonds in their portfolio… BELOW the price they initially paid for them

-With deposits from major clients leaving

-with no new deposits coming in

-with many VC investments failing

-with bond value plummeting

…SVB could no longer satisfy withdrawal requirements, and this led to a runaway collapse of not just SVB, but the entire banking sector

This led to a major panic throughout the banking sector. People lost confidence as to how safe their deposits will be, and rushed to withdraw them

This, combined with the fact that many banks hold illiquid assets, led to a snowball effect, making the problem exponentially worse

Most banks accounts earn 0.2%. However, because if the major risky investments SVB made, they were able to guarantee a return of 4.5%… which attracted a lot of clients to them.

However, SVB is a private bank, & like any private corp, their main priority is their OWN BOTTME LINE

SVB is not the only bank that experienced a crisis. Many banks desperately asked to be bailed out. I will make a separate thread about bailouts, but I’ll end with this:

SVB is getting bailed out at 100% PAR VALUE, with an additional 100% margin… which is socialism for the rich