ISSUE III
March 2023
THE OFFICIAL RAMAZ UPPER SCHOOL BUSINESS INVESTMENT JOURNAL YTD:
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OIL
From Boom to Bust: The Collapse of Silicon Valley Bank Seth Abraham, '25
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Contents WHAT'S NEWS Stock Market
Can Tesla Move Higher? From Boom to Bust: The Collapse of Silicon Valley Bank Is Tesla Overvalued?What's Happening with Meta? Are we Heading for a Bear Market? Chevron $75 Billion Share Buyback What is Short Selling? Economics and Politics Tackling Global Warming Falling Oil Prices Capitalism Vs. Communism George Santos Campaign Violations
As you may know, Silicon Valley Bank (SVB) was taken over by the Federal Reserve at the end of last week. But why did the bank have such a sudden collapse? Just before when the Federal Reserve took control, SVB was the 18th largest bank in the United States with over $209 billion in deposits. SVB catered to most venture capitalists and hedge funds. These wealthy organizations had their money invested (through SVB) in a lot of high-tech start-ups, and as the tech industry boomed, so did their profits. With this rapid growth, SVB received many more deposits and consequently invested them in treasury bonds and mortgage-backed securities. This was a seemingly more conservative approach than they originally had in place. Once the Federal Reserve began increasing interest rates to control inflation, the value of those bonds dropped and since these bonds were SVB’s main source of income, they couldn’t make up the difference. Additionally, there was a mismatch in how SVB was doing business: they were THE RAM STREET JOURNAL
taking deposits from investors and investing them in long-term bonds rather than short-term bonds. The bond yield curve looks like the radical function. This means that the marginal profit of long-term bonds was small the additional amount of profit they would gain from investing in long-term bonds, in comparison, was small. Additionally, they would take on a lot more risk by investing in long-term bonds as they were betting on the idea that interest rates would stop their rapid increase. If you have been keeping up with Jerome Powell and the FED, you understand that this was a risky bet. SVB was on the losing side of this bet as interest rates kept rising. The continuation of these rising interest rates made SVB’s assets worth comparatively less. On their balance sheet, banks can put the price they paid for a bond or treasury note rather than what it is worth now. This means that the banks had a significant amount of unrealized losses- where you lose money on paper, but you haven’t taken the loss yet, as the bond is still in your
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