Source: Candy’s Dirt —
Last Friday, the world gasped as one of the tech industry’s most prominent banking institutions, Silicon Valley Bank (SVB), collapsed under $175 billion in uninsured deposits. This monumental financial failure has only been surpassed in scope by the folding of Washington Mutual, which swiftly led to the financial crisis of 2008. And while we recently learned the government has stepped in to service SVB’s debt, many markets are holding their breaths.
In terms of the real estate market, this kind of collapse evokes extreme cases of PTSD. In fact, the same kind of monetary recklessness that tanked SVB led to a global housing crash in 2008. Only instead of dealing in mortgage-backed securities like Lehman Brothers and Bear Stearns, SVB dealt in trash treasury bonds.
The fallout from this failure is already affecting other institutions. In fact, just days after SVB collapsed, New York’s Signature Bank went under. Unfortunately, we can only speculate what all this will amount to in terms of the real estate market but we did some digging and spoke with an expert to gain some perspective.
The Long And Short of Silicon Valley Bank
SVB is perhaps the largest commercial bank serving today’s tech and start-up economy. With a reported $212 billion in assets in the fourth quarter of 2022, this bank was a behemoth among the world’s wealthy tech sector. They invested in businesses, serviced payroll, and helped many venture-backed startups capitalize on growth opportunities. Unfortunately, they were also in the business of investing in treasury bonds.
Following the pandemic, treasury bonds were super attractive as interest rates were at all-time lows. To increase profits, SVB purchased a ton of these bonds in 2021 and 2022. Then, the Fed began its notorious campaign to increase interest rates. As interest rates went up, treasury bond values dipped lower and lower.