ColdFusion - US Banking Crisis: The Truth Behind The Disaster

Episode Date: September 16, 2026

Silicon Valley Bank, Signature Bank and Silvergate bank have all collapsed throwing up a warning signs that something horrible is happening in the economy. But what's the truth here? This is a story of incompetence, a changing economic environment and political lobbying. 2008 Video: https://youtu.be/U1dpWiZoiJU ColdFusion Podcast: https://www.youtube.com/c/ThroughTheWebPodcast First Song: https://youtu.be/WvwkUTqgOmM Last Song: https://youtu.be/8nTMej5WIOw ColdFusion Music: https://www.youtube.com/@burnwatermusic7421 http://burnwater.bandcamp.com Get my book: http://bit.ly/NewThinkingbook ColdFusion Socials: https://discord.gg/coldfusion https://facebook.com/ColdFusionTV https://twitter.com/ColdFusion_TV https://instagram.com/coldfusiontv Producer: Dagogo Altraide Researched by: Ruslan Pushkar Edited by: Tanzim Uddin, Dagogo Altraide Executive Producer: Tawsif Akkas Learn more about your ad choices. Visit megaphone.fm/adchoices

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Hi, welcome to another episode of Coldfusion. This is Forbes magazine on the 14th of February, 2003. The title of this particular article reads, America's Best Banks. An entity by the name of Silicon Valley Bank was ranked number 20 and has been on the list for five years in a row. Founded in 1983, SVB was the 16th largest bank in the United States and had over $209 billion in assets. Yet, in a few short weeks, the bank would go up in flames over the course of a couple of days. Silicon Valley Bank's collapse set off a panic not seen since the days of the financial meltdown of 2008. The collapse of Silicon Valley Bank is causing shockwaves across the entire business world.

With the FDIC now in control, customers can access up to $250,000 on Monday. But as ABC's Jacqueline Lee explains, that's not enough for many companies left struggling to manage their finances. This weekend, clients of Silicon Valley Bank are scrambling and imploring the federal government to step in to help recover uninsured deposits over $250,000. It's the largest bank failure since the financial crisis of 2008. The crash created a cascade of events. Some smaller regional banks lost the majority of their valuation, and another has since collapsed.

Companies such as Roblox, Vox Media, and a whole host of Silicon Valley startups are scrambling to find the cash to pay their employees. Meanwhile, the UK government is at work, trying to minimize the effects of the crash. and at the same time, the rest of the economy is trying to figure out what the long-term consequences of this disaster may be. This is the largest bank failure since 2008 and the second largest in history. But how did a bank go from making the list of the best banks to bankrupt in less than a month?

What happens next? Is this the start of another financial crisis? Maybe not, but there are some risks. What everyone seems to have missed in this story is that it's more of a cautionary tale of mismanagement. incompetent and political lobbying. The bank's parent company, its CEO and CFO, are all being sued for fraud, and the CEO lobbied Congress to remove the very laws that would have prevented this crash in the first place. This whole thing is a crazy story, so let's get into it.

To understand the consequences of this crash, we need to know how it started. Silicon Valley Bank, or SVB, was no ordinary bank. It was the go-to institution for venture capital, and tech startups. The bank enjoyed a healthy period of growth during the 2020 pandemic. Low interest rates and excessive money printing from the US Federal Reserve caused the tech sector to boom. Money was easy and investors were generous. At the time, startups were able to raise money easily due to cheap credit. Once the companies got that money, they needed somewhere to store it. This is where Silicon Valley Bank comes in. SVB was very popular among founders. In fact, nearly 50% of

All United States startups have some deposits in Silicon Valley Bank. In 2021, SVB saw a massive influx in deposits, from around $61 billion at the end of 2019 to around $189 billion at the end of 2021. Now, SVB wanted to make a larger profit from all of this cash that they were suddenly sitting on. A safe investment would be long-term bonds. These are usually seen as safer than stocks

and provide a steady return. Here's why. When interest rates are low, newly issued bonds pay lower interest rates or returns, making existing long-term bonds that pay higher, more attractive. This leads to an increase in demand for these bonds and an increase in their price. So whoever's holding these long-term bonds may...

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would be their profit. This arrangement works particularly well. Even if some clients decided to withdraw sooner, the bank can simply sell the bonds and get the liquidity necessary to pay back the depositor. But what happens when everyone wants to withdraw their money all at once? Silicon Valley Bank was about to find out. As we covered in a previous episode about the 2008 crisis

and its aftermath that still affects us today, the post-crisis market isn't used to a high interest rate environment. and higher interest rates could create risks in vulnerable areas of the financial system. The risk management team of SVB ignored this risk, but more on this later. Problems for SVB began brewing in late 2021. In the United States, inflation began to rise. Usually when this happens, the US Federal Reserve would increase interest rates to slow the economy and counteract the inflation.

But this time, the US Federal Reserve stood by and did nothing for a while. They told everyone that inflation was transatlantic. This turned out to be completely wrong, and when the Fed realized their mistake, they had to raise interest rates very quickly to make up for lost time. This whiplash in higher rates didn't allow time for the market to adjust. Meanwhile, at SVB, their investing environment began to flip on its head. As the interest rates rose, the newly issued bonds began to pay higher interest rates, and this made the older long-term bonds less attractive to investors. This resulted in a decline in demand, causing their prices to fall. SVB still owned tens of billions worth of these long-term bonds, so they were a sitting duck for risk.

By the end of 2022, there were $15 billion in unrealised losses from the fall in long-term bond prices. Now, normally this isn't an issue, as if SVB held onto these bonds until maturity, they wouldn't lose anything. But this was not a normal time. In a higher interest rate environment, technology startups were struggling to get financing as credit began to dry up. These tech companies needed to dip into their cash to fund their operations. With startups being the main client for SVB, the deposits started to slow down, falling from 189 billion at the end of 2021 to 173 billion at the end of 2022. With every large withdrawal, SVB had to sell some of their long-term bonds to cover the transaction. For some time, the bank had enough liquidity

to deal with these withdrawals. As time passed, the deposit was a deposit. continued to leave. On March 8th, 2023, SVB made a bombshell announcement. They were selling off their entire liquid bond portfolio worth over $21 billion. Until this point, the falling bond prices were only unrealised losses, that is, losses only on paper. But once sold, SVB took a $1.8 billion loss in the sale. To recoup some losses, management decided to raise some capital. While this seemed like a logical choice, this was a grave error for the cost. from management. The timing could not have been worse. Just days before, Silvergate, a small crypto-focused bank, failed due to a similar issue. Although this failure had more to do with the

exposure to the overall crypto market, and FTX in particular, but the root cause was the same. The bank had a lot of assets which had lost their value due to rising interest rates, and when withdrawals in the crypto market began to happen, they had no choice but to sell those assets. Each sale of the assets was at a lower price than when they bought it. Once the losses piled up, there was no turning back. Investors assumed that SVB was going down the same path. Fears over insolvency issues quickly spread, and this resulted in SVB. New from Nespresso. Blend wellness into your coffee routine with a coffee plus range infused with functional benefits. Choose the coffee you love with added B vitamins, like coffee plus B12 to help support immune function, and coffee plus B6 to keep

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to pull their money out of SVB, further exacerbating the problem. By the end of March 9th, customers have withdrawn $42 billion, leaving the bank with a negative cash balance, about negative $958 million. The withdrawals was so heavy that it ended up crashing the bank's internal system, only creating more fear. Depositors had a reason to panic. In the United States, under the Federal Deposit Insurance Corporation, or FDIC, the US government only guarantees refunds up to $250,000. Now the thing is, being a technology company-focused bank, 97% of SVB deposits exceeded this number. The value of Silicon Valley Bank's shares continued to be destroyed,

until its trading was suspended on the morning of March 10th. They tried to raise capital and failed, and then by midday on March 10th, the bank started to look for a company to bail them out, and no one wanted to touch them. Nobody knew the extent of the problem, so it was a risk. This culminated in SVB being shut down by the FDIC. This all happened on March 10th,

less than two days after the crisis started. This was a spectacular failure on the side of management. they failed to adjust to a rising interest rate environment. And yes, the US Federal Reserve did get it wrong when they stated that inflation was only transitory. But SVB should have had a contingency plan just in case inflation did stick around. If any of you watching work in risk management,

especially in banking, I'd love to hear from you in the comments below on what a contingency plan could have been. It seems that as soon as interest rate started rising, the bank could have began to offload their long-term treasuries and exchange them for bonds yielding high. interest to minimize their losses. Instead, it seems that they waited and sold all of their liquid long-term bonds at once after the value had already fallen. As Bill Akman states,

quote, Silicon Valley Bank Senior Management made a basic mistake. They invested short-term deposits in longer-term fixed-rate assets. So how could management do such a thing? Well, the story gets a bit wilder, the more that you look. As people began to dig deeper into this crash, some new information painted a very worrisome picture. The chief risk officer for Silicon Valley Bank hightailed and left in April of 2022 and wasn't replaced until January of 2023. This meant that the bank had no chief risk officer for eight months.

This was precisely at the time when the downward feedback loop was accelerating from the higher interest rates. Just when the bank's portfolios needed to be rebalanced to account for higher interest rates, there was no one to oversee the process. In other words, the bank was a plane without a pilot during a storm. Just shocking.

But it doesn't end there. Worse yet, Silicon Valley Bank's CAO was the CFO of none other than Lehman Brothers at the time of its crash. And you can't help but laugh at how ridiculous this next part is. The Federal Reserve Bank of San Francisco was in charge of supervising SVB, and guess he was on the board, the CEO of SVB, Greg Becker. Greg was promptly yeated from the board after the crash. Interestingly, the CEO, CFO and CMO of the bank sold a combined $4.4 million of company's stock just weeks before SVB's decline.

An SEC filing stated that the sale of the shares was, quote, automated and, quote, pre-planned. But it remains unclear if there was some foreknowledge of the collapse. Further to this, the bank's employees see if their annual bonuses, ranging from 12,000, to 140,000, only hours before the bank's official crash. I can't allege implications of wrongdoing, but there may be a chance. New from Nespresso. Blend wellness into your coffee routine with a coffee plus range, infused with functional benefits. Choose the coffee you love with added B vitamins, like coffee plus B12 to help support immune function,

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Right now, SVB is being sued for fraud by shareholders. The lawsuit states that the company failed to disclose how rising interest rates could leave the bank particularly susceptible to a bank run. The crash of SVB was indeed unique. A combination of rapid growth, bad risk management, low interest rates, excessive exposure to only one market, and large deposits with no FDIC insurance have all led us to the same. this point. But is this the start of something bigger for the financial system? Is it a Lehman moment? It may very well have been a Lehman moment for regional banks, as they have similar characteristics to SVB. Their clients are businesses. They operate in a very limited number of

fields, and they all have some exposure to unrealised losses in this higher interest rate environment. Because of this, the stocks of First Bank Republic, Western Alliance Bank Corp and Westpac Bank Corp and other regional banks have all seen large declines. Some as much as 66% in a day, many hedge funds have also started to short sell. Yeah, worst week since 2020 last week, John, and this week is not starting out on a better note, despite the fact that depositors of both Silicon Valley Bank and signature bank are going to be made whole. And the Fed has announced this new bank term lending facility that is going to lend to banks at extremely favorable rates. That is not helping the regional banks this morning. Clearly, there is still fear out there about this spreading

elsewhere. Just take a look at the shares of First Republic, down 65% here at the opening bell. This was on top of a 33% loss last week. A week ago, this was a $122 stock. This morning, it is trading at $28 a share. That is how brutal this wipeout has been, John. And it's elsewhere in the regional banks as well. Pack West, Western Alliance. The falls and the stock prices were so drastic that the trading of a slew of these banks had to be halted. Okay, so this next part is key. Right at this moment, the rest of the banking system seems to be largely unaffected, as one analyst at Barclays wrote, quote, deposit pressure is the greatest for smaller banks, including regionals. Global banks have more diverse funding sources and therefore are less vulnerable

to that risk. That being said, Bank of America does have large exposure to long-term bonds that are planned to be held to maturity, though if they don't sell and actually hold these bonds to maturity, this shouldn't be a problem. Many are comparing this situation to that of the 2008 financial crisis. Yet this is quite different. During that time, some of the largest banks in the US all failed simultaneously, and they had much bigger issues to deal with. These banks had sizable investments in assets that overnight became worthless. The assets that are responsible for the crash of SVB are not worthless. In fact, far from it. They're backed by the US government, and if held to maturity, in theory, they're not going to lose any value.

The problem for SVB is that they sold all of these bonds early and realised those losses, tried to raise funds to cover those losses, and that triggered a panic. Another difference resides in the fact that the banks in 2008 had huge leverage issues. In the case of Lehman Brothers, for example, the leverage exceeded 30 times the underlying assets. In other words, a decline of 3 to 5% in those assets meant that Lehman Brothers was completely, bankrupt. And lastly, the big banks have a far greater degree of diversification than regional banks. This means that they can withstand liquidity shocks more easily, as generally not every single sector gets impacted at the same time. Not only this, but the bigger banks will probably

benefit from the collapse of regional banks. Depositors may move their money from regional banks to larger institutions, and if there are more bank failures, the larger banks can simply gobble up their healthy parts for pennies on the dollar. Does this mean that the risk of a financial crisis is nonexistent? Well, not really. While the current financial system. Visit BetMGM Casino and check out the newest exclusive. The Price is Right Fortune Pick.

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Let your morning change you. Discover Coffee Plus on Nispresso.com is very different from the one in 2008. There is still a chance that this may be the first crack in the fabrics of the current financial system. As of December 2022, the total unrealized losses for the whole banking system was close to $620 billion.

If panic spreads too much, many small banks will go down as a result, creating a cascading effect that would cause the rest of the economy to wobble. The Federal Reserve and the financial sectors of the US government have recognised this and have come up with a solution, which we'll get to shortly. The industry that will feel the most pain is going to be the tech sector.

SVB, quote, was the lifeblood of the tech ecosystem, states Roe Kana, a congressman from California's 17th district. Tens of thousands of startups rely on them to pay their day-to-day operations, including staff. You see, unlike traditional businesses, Many of these tech companies have negative cash flows. The only way that they can pay their expenses is by raising capital. After the capital has been obtained, they store it and use it until the next raise.

If you take that stored money away, very quickly, many of these firms start to fail. Several firms aren't going to be able to pay their employees, and if there's further delays in when the money is returned, a huge wave of layoffs and then eventually bankruptcies will follow. Etsy had to delay their seller payouts, the streaming company, Roku held a quarter of its cash reserves in SVB. Roblox, Rocket Lab, Circle, Vox Media and Vimeo are among countless companies affected. The CEO of Y Combinator, Gary Tan, puts it best, quote, this is an extinction level event

for startups and will set back their innovation by 10 years or more. Confidence in the finance industry has been shaken. US banks lost a combined 100 billion and 50 billion for the valuation of European banks. On the 13th of March, Joe Biden had to reassure the United States population. Look, the bottom line is this. Americans can rest assured that our banking system is safe. Your deposits are safe. Let me also assure you we will not stop at this.

We'll do whatever is needed. The situation also spread to the UK. The Bank of England was looking for ways to minimize the damage. The United Kingdom also had an arm of Silicon Valley Bank. Then, on March 13th, HSBC bought the stricken UK entity for a measly one pound or one US dollar and 21 cents. At the height of the chaos, 200 UK firms confirmed that they weren't going to be able to pay their staff. On the other side of the world, Chinese startups also reported issues accessing their funds. SVB was especially popular among Chinese biotech startups.

As one founder explained, quote, we tried everything Friday morning, but it was already too late. The transfer is still processing. It's very crazy. We didn't think this could happen. For Chinese groups, their ecosystem was already damaged by Beijing's tech crackdown and COVID-19 pandemic controls, not to mention the rising geopolitical tensions with Washington. So in all of this, where were the regulators?

Well, being lobbied apparently. Back in 2015, SVB's CEO begged lawmakers to exempt banks would have assets less than 250 billion from the tough supervision and regulations of the Dodd-Frank Act. For those who remember my 2008 episode, this act was put into place to stop another financial crisis. In 2018, a bill was passed that weakened this act, and Greg Becker got his wish. Sol Omerova, professor of law at Cornell University, who testified before the Senate against relaxing regulations for smaller banks, said that the 2018 bill, quote, should not have passed, and he was spot on.

The dust has only just started to settle. Silicon Valley Bank is now under FDIC control, and the FDIC... Visit BetMGM Casino and check out the newest exclusive. The Price is Right Fortune Pick. BetMGM and GameSense remind you to play responsibly, 19 plus to wager. Ontario only.

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Tim Mayopoulos as CEO. On March 12, 2023, another regional bank, signature bank collapsed. Meanwhile, signature bank marks the third largest bank failure in U.S. history. Seeing more possible bank failures on the horizon, the Federal Reserve had to do something unprecedented. They announced the creation of a bank term funding program to shore up liquidity for other at-risk banks. They're allowing the affected banks to sell their long-term bonds and securities to the Fed without a loss. In another announcement on the same day, the Treasury, Federal Reserve and FDIC, stated that all depositors, even the uninsured ones, will be made whole without the expenditure of taxpayer money. Some financial commentators have said that this is an inflationary move.

A lot of regional banks who used the same style of banking as SVB saw worried depositors piling up outside to get their money out. The Fed and US government had to do these drastic moves to avoid bank runs and a cascade of bankruptcies. Nobody is a fan of government-assisted bailouts, but this is a tough situation. As Simon Johnson, an economist at MIT, who previously served as the chief economist of the IMF,

says, quote, All choices are bad choices. You don't want to extend. this kind of bailout to people, but if you aren't doing that, you face a run of really big and really hard to predict proportions. This is the largest banking failure since the financial crisis. If the Fed's creation of the bank term funding program isn't as smooth as promised or takes too long, the consequences for the companies around the US could be devastating. Even though I think the Federal Reserve does have some blame for the background macroeconomic situation, they did need to do

something. Further to this, if the Federal Reserve reverses course and starts cutting interest rates, inflation could ramp up again, causing even more havoc. They're stuck between a rock and a hard place. Raise rates destroy the economy. Cut rates also destroy the economy. With Silicon Valley holding 50% of US VC-backed startups as customers, 65,000 startups would be affected by the collapse. Even if the government does succeed in making each depositor whole, it's a sad time for the tech sector as confidence has been shaken. The nightmare of being locked out of company cash, delays in paying staff, and countless administration issues will leave a scar.

In summary, this is a story of rapidly changing market conditions, risk management failure, and lobbying. But zooming out even further, this is exactly the kind of risk I was talking about in my 2008 episode. In the third section of that video, I talked about how unhealthy this economy has been ever since the crash. The post-crisis economy has been built on a scaffolding of easy money and low interest rates. When these conditions reverse, we'll start to see that weak scaffolding start to shake. What happened here is proof right in our faces. It will be the weaker and badly managed sectors of the economy that start to show it first.

But what happens after that is anyone's guess. You should definitely watch that episode if you haven't already. I think you'll get a lot out of it. So this SVB story is still unfolding. We can only wait and see what the longer term impacts will be. So that's about it from me. Thanks for watching. If you did enjoy this, take a look around on the channel.

There's plenty of interesting stuff on here. All right, my name is DeGogo, and you've been watching Cold Fusion, and I'll catch you again soon for the next episode. Cheers, guys. Have a good one. It's new thinking.