Just last week, Silicon Valley Bank was shut down by Financial Regulators resulting in the biggest bank failure since the global Financial crisis in 2008. a rough week for the banking industry. The collapse of Silicon Valley Bank the second biggest bank collapse in U.S history Silicon Valley Bank or Svb for Shorts was the 16th largest bank in the U.S and a key player in the tech industry. Its failure could potentially lead to more layoffs and startups.

Shut it down. Despite the government's bailout that's supposedly not going to cause the taxpayers any money, there's still a lot of unease across the banking sector. with a small Regional Banks like Western Alliance and First Republic Bank getting hit hard the most, especially following the shutdown of a second Bank Signature Bank of New York The Fallout from Silicon Valley Banks collapse has led to a Continental white sell-off in financial stocks a raising about 19 billion dollars in value from Canada's top banks in the last couple of days. In this video, we're gonna talk about how the 16th largest bank in the U.S collapsing a match of 48 Hours whether the Svb contagion will likely lead to the failure of other Banks and how this will affect individual investors like you and I and most importantly, how you can make sure that your trading and investing accounts are insured so if your broker fails, you don't risk losing all of your money.

Hey, knock on wood that this never actually happens. But nobody saw the collapse of Svb coming either. These events, including the Federal government's bailout really came as a shock to everyone in the tech and financial industry and makes us wonder what does this mean for the rest of us? And can we even trust the financial institutions anymore without hard-earned money? Let's talk about it. Svb is the 16th largest bank in the U.S With about 200 billion dollars in assets under management, the Santa Clara Base bank is considered the backbone in the Venture Capital industry, providing banking solutions for thousands of tech startups.

Just last week on Wednesday, the bank announced that they were seeking to raise over 2.2 billion dollars in capital by selling more shares in order to recover some of the losses from their investment sales. Svb said they lost 1.8 billion dollars selling Assets in order to meet withdrawal requests following a larger than expected decline in deposits over the last year. When the raising Capital news was announced, it caused a Widespread Panic Among many Svb clients most of them were in Tech startups, the bank CEO Gregory Becker urged his investors and banking clients to stay calm and supports the bank the way has supported its customers over the last 40 years. However, if anyone has learned anything from the 2008 financial crisis, we know that stay calm, everything will be okay.

Basically means it's time to panic and run. Federal Reserve has moved quickly to, uh, bring order to the financial markets. Some Venture Capital firms told their startup companies to withdraw all their money out of Svb due to concerns of the bank's liquidity. This ultimately created a vicious cycle that led to more and more withdrawals and investors dumping their positions in the bank stocks, resulting in a classic Bank Run And by Thursday morning, customers had tried to withdraw 42 billion dollars from Svb because just like my marriage with my ex-husband nobody wanted to be the last one out.

Svb stock shares had fallen by 60 percent from 260 dollars to 170 overnight on Wednesday morning, wiping out more than 80 billion in shares value, and by Friday the stock value had declined even more by another 70 pre-market Then comes the halt shortly after the market opened. Unfortunately, the bank failed to raise enough capital and find a buyer and it was unable to meet his customers demand to withdraw 42 billion dollars by Friday morning. So in just a short 48 hours after the initial Capital race announcement, Svb Silicon Valley Bank had collapsed. So these series of events raised two important questions: First, how did Svb get into this dire position in the first place? and second, this is bank's failure being the largest American Bank collapse since 2008 means that other Banks could face similar issues in liquidity, affecting not just the tech companies, but other individual investors as well.

So that starts with the first question. As mentioned earlier in the video, Svb mostly served startup companies providing these clients, lending and banking. Solutions when a few other big Banks were willing to do so due to the risky and unprofitable nature of most startups over the last few years. As the overall Tech business boomed with the help of low interest rates, Svb was loaded with cash deposits from its customers.

The bank's deposits have more than quadrupled from 44 billion dollars at the end of 2017 to over 100 89 billion dollars at the end of 2021. And what did Svb do with a large amount of deposits they poured over 128 billion dollars into investing in the U.S treasuries and mortgage bonds at the peak prices by the end of 2021? As you probably know already, the Federal Reserve has increased interest rates at an extremely fast pace in 2022. In order to curb inflation, The Federal Funds rate has soared from only 0.5 percent in April of 2022 to 4.75 by January of 2023, making this the most aggressive rate hike since 1994.. the Sky High interest rates in 2022 killed the Euphoria in Venture investing.

Remember, Svb's customers were largely startups needing Capital funding from Venture capitalists. So when fundraising started drying out due to higher interest rates, that means Svb customers were depositing less into the bank and withdrawing more and more money from their accounts. In order to meet these withdrawal requests from the customers, Svb had to sell their bond Investments to gather cash. Remember Banks don't keep 100 of the customers deposits in cash sitting in reserve.

And for Svb, they had a lot of their customers funds sitting in what was considered safe. Investments U.S Treasury bonds. These bond prices and interest rates have a negative correlation. So when interest rates increase, the value of their Investments go down.

Svb had invested 128 billion dollars in U.S treasuries in 2021 at Peak prices due to low interest rates. That wouldn't have been a problem if there was no need for so much customer withdrawals. They could have just held on to those bonds to maturity dates and incurred no losses. Unfortunately, in order to gather enough cash to meet customer demands, Svb had to sell the liquid bonds for a fat 1.75 billion dollars in losses, leading to the need for the company to raise more.

Capital Last Wednesday the domino effect of the situation escalated quickly. Unable to come up with a 42 billion dollars in cash, the bank has failed on Friday morning and was closed down by FDIC Now that we understand how Svb collapsed so quickly within 48. Hours The second important question we should all be asking is is this going to be a contagion to spread other financial institutions like the series of events we saw in 2008. Unfortunately, it seems like a specific areas that would be most impacted by the collapse of Svb will be the tech startups and potentially even more.

Regional Banks While FDIC Insurance covers depositors for up to 250 thousand dollars, over 97 percent of the bank's customers had deposits exceeding that limit. Remember, the bank's customers will mostly startup companies needing to meet payroll and operating expenses. So naturally, all these expenses would exceed more than 250 thousand dollars. It's estimated that total Wang insured deposits at Svb comes to over 150 billion dollars.

Gary 10 The CEO of White Combinator, a really well-known startup incubator, caused this collapse of Svb and extinction level events for startups. he said. and I Quote: I Literally have been hearing from hundreds of our Founders asking for help on how they can get through this. They're asking, do I have to furlough my workers He also estimated that over one-third of White Combinator startups would not be able to make payroll at some points next month if they cannot access the rest of the deposits.

Beyond 250 000 Since their funds are only insured by the FDIC for up to that amount, there was no guarantee to when and whether customers with deposits would get all of their money back. The serious situation could lead to even more job losses in the tech industry and potentially hundreds of startups shutting down. And then there comes the bailout. Just in time.

Last Sunday The US government announced that they will guarantee all depositors their money back at both Svb and Signature Bank Yes, that covers even the amounts exceeding the FDIC insured 250 000. This rapid action was really necessary in order to prevent Svb contagion to spread across to other. Banks Like we talked about earlier, a thing already happening with First Republic Bank and Western Alliance Bank, This situation could really quickly escalate to even more Bank runs as businesses start pulling large sums of money out, resulting in potentially even more Bank collapses. Svb had around 150 billion dollars in uninsured customer deposits and Signature Bank held around 70 billion dollars.

Their customers will be able to access all of their funds as early as Monday, thus saving thousands of startups from Financial ruin and prevented even more mass layoffs. As for the bank's investors, and Executives, they will not be protected, meaning that they will lose all the money invested in this risky asset. Shares of regional Banks First Republic Pacific West and Western Alliance have plunged as much as 50 to 70 percent in a span of three short stays. Some of these Regional banks are also based in California and they have similar exposure to the Venture Capital clients as Svb and they also had similar investment portfolios.

While the collapse of Svb could cause more Ripple effects in the tech sector, experts say the effect to the big Banks and everyday individuals will be very limited. Major Bank stocks such as Wells Fargo JP Morgan and Bank of America saw some pressure last week. However, they were able to recover some of their gains by Monday and that's because these big Banks operated very differently from SVP Me, they mostly have more diverse clientele and Investments instead of focusing on very single Niche area of business like Tech startups. While it's very concerning that there might be more economic Ripple effects, it's at least reassuring that most individual banking clients should be unaffected.

as Traders and investors in the stock market, We must understand what kind of insurance limit is set in place to protect our banking, investing, and trading accounts. This is something I'm sure many of us have realized after witnessing the collapse of Svb within 48 hours. So here are the two kinds of insurance protection that you definitely need to pay attention to. and they are Sipc and FDIC as we talked about earlier, FDIC Insurance Protects customer deposits in banking accounts.

So in the event a bank like Svb fails, you're guaranteed to receive up to 250 thousand dollars of your money back or if the government decides to bail the bank out again. The second Insurance you should know about is Sipc Insurance. So instead of insuring bank accounts, this ensures brokerage accounts. In case you're trading or investing, broker fails, Sipc Insurance will cover up to five hundred thousand dollars in Securities Value included within the same coverage is up to 250 000 in cash.

Important notes: here: this Sipc insurance is eligible per separate capacity, not for each account. Meaning, even if you have multiple individual accounts across more than one broker, you're still insured for only half a million dollars in Securities with up to 250 000 in cash included. You can check whether your broker account is Sapc insured on this official website. I Will assure you that all the Brokers have ever recommended on this channel are Sipc insured.

I'll leave all the details and links for you to read more below. Whether this Svb failure will lead to more Ripple effects in the banking industry or our economy will have to see if you're interested in learning more about the Sipc insured. Brokers I Recommend Then make sure to check out this video and I'll see you over there. Thank you so much for watching as always I'm the humble Trader and I'll see you guys next time.