Jacqueline Ozdemir breaks down what happened over the weekend so you and I can easily understand what happened and why it happened.
Silicon Valley Bank specializes in providing personalized financial solutions to executives of innovative companies, start-ups, and investors who fund start-ups. They offer tailored financial assistance to start-up owners who deposit money from investors into their bank until they need it. The bank then uses that money to invest in low-risk Treasury bonds, earning extra money.
However, last year, interest rates increased rapidly, causing the value of bonds to decrease significantly. Simultaneously, investors stopped providing funding to start-ups, forcing their owners to withdraw money from the bank more frequently. The problem was that the money they wanted to withdraw was in the Treasury bonds that had decreased in value.
To give their customers the money they needed, the bank had to sell some of the bonds at a loss, causing confusion and triggering a "run on the bank" as many people attempted to withdraw their money at once. While this issue seems to be localized to Silicon Valley Bank, confusion and uncertainty lead to chaos, causing people to move their money from smaller banks to bigger ones.
The government will meet next week to discuss interest rates, and they might decide to halt the rate hikes temporarily to stabilize banks like Silicon Valley Bank and reassure investors. Alternatively, they might prioritize other issues such as economic growth and keeping prices stable. The market will always be an interesting topic to discuss, but predicting its behaviour is nearly impossible.
If you're concerned about your investments, seek advice from a skilled professional like Jacqueline Ozdemir of CI Assante Wealth Management| Ferguson Financial Planning instead of taking a "run to the bank" approach, which could lead to volatile results. We appreciate Jacqueline's insights and await next week's developments.
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