The saga of Silicon Valley Bank is a striking example of how the surge in interest rates over the last year continues to upend once high-flying investors, financial institutions and companies that thrived in a world of low-interest rates.
The bank of choice for Silicon Valley's hot startups is suffering a remarkably sudden reversal of fortune.The parent of Silicon Valley Bank late Wednesday said that it was seeking to raise over $2 billion in capital, after facing big losses on a giant batch of bonds it sold.
The bank's profits, in part, come from the difference between the interest it pays to borrow, and the interest it receives when it lends or invests.SVB has been finding it harder to earn money over the last year because a key source of cheap deposits — the venture capital boom — has slowed down, just as losses in its investment portfolios have risen.
That means money-losing tech companies are rapidly burning through the cash that previously sat as deposits at SVB, with few fresh investor checks rolling in to help them out and puff up SVB's deposit base. "This may have raised liquidity and capital concerns for the bank," he went on, describing the reasoning behind the financial moves SVB announced this week."liquidity concerns" translates roughly as "the bank needs to come up with some cash, quick."
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