Why Is Everybody Talking About Banks' Long-Term Bonds?
Normally staid and boring bank stocks have been volatile investments in recent weeks, after the collapse of some high-profile banks -- including Silvergate Capital, Silicon Valley Bank (owned by SVB Financial), and Signature Bank. The contagion spread across the industry, as some banks, such as First Republic and Credit Suisse, also had deposit runs, while others saw their stock prices plummet from the panic.
So how did this happen? Last year, smaller and regional banks outperformed their larger counterparts, mainly because of a surge in interest income due to higher interest rate, without taking a hit like larger banks did from a slowdown in investment banking. But the banks that failed are not your typical regional banks: Signature and Silvergate catered to the cryptocurrency industry, while Silicon Valley Bank (SVB) was a leading bank for start-ups and venture capital investors. Although there are many issues that led to these failures, one of the big issues for SVB had to do with its long-term bonds. Let's take a look at why.
As mentioned, SVB is one of the leading banks in the country for entrepreneurs and venture capital investors. As such, it took in huge amounts of deposits in 2020 and 2021 during the technology boom, as its banking customers raised a lot of cash from venture capital investors and deposited it with SVB. Deposits went from about $61 billion at the start of 2020 to about $191 billion at their peak in early 2022.
Source Fool.com
