Understanding How a Bank can Fail

This past week, Silicon Valley Bank was closed by banking regulators. Let’s understand the basics of how this happened and why it matters to the tech industry. 

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SHOW NOTES:

• FDIC Creates a Deposit Insurance National Bank of Santa Clara to Protect Insured Depositors of Silicon Valley Bank, Santa Clara, California

HOW CAN A BANK WITH SO MUCH MONEY SHUT DOWN?

• Banks never hold all the money that they have on the books as deposits
• Banks manage a portfolio of investments
• Banks try and manage the portfolio within certain ratios
• Banks have regulations

LEVERAGE, INTEREST RATES, RISK, TIMELINES, COMMUNICATIONS and PANICS

• Basics Part I - Systems built on Trust, Regulations to Enforce Actions
• Basics Part II - What is SVB?, Deposits vs. Investments, Leverage, Interest Rates
• Higher interest rates increases the risk of existing investments
• Valuations vs. Valuations on Paper
• Insurance, Diversified Portfolio
• Cloud Analogies - Single vs. Multi-Cloud, Shared Resources Risks, Profitability of a Service, Best Practices vs. Practicality, Rising Costs (or Shortages) 

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• Email: show at the cloudcast dot net
• Twitter: @thecloudcastnet