Sand Vale Bank
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You’re mingling with the elite of Silicon Valley at a lavish rooftop dinner party in San Francisco. The skyline is glittering and the bubbly is popping. You spot some familiar faces: Elon Musk, Mark Zuckerberg, Tim Cook. You also see some newcomers: the founders of Clubhouse, Substack, and NFTify. Everyone wants to talk to you because you’re the SVB executive who can make their dreams come true.
A hot new startup called MetaVerse has just raised a whopping $100 million Series A from Andreessen Horowitz and Sequoia Capital. They’re building a virtual reality platform that lets users create and explore immersive digital worlds. They’re looking for more money to scale up their operations and hire more engineers. They’ve heard that SVB offers venture debt with favorable terms and no strings attached.
You’re sitting across from the CEO of a promising startup called RoboTaxi. They’re developing self-driving cars that can be summoned via an app. They have a working prototype and impressive traction in several markets. They’re eager to secure funding from SVB because they know you have connections with top VCs and tech giants who could acquire them in the future.
SVB has amassed a staggering $190 billion in deposits thanks to its successful business development efforts. The bank has been offering sweetheart deals to startups, VCs, and tech executives who agree to bank with SVB exclusively. The bank is looking for ways to invest the money and generate returns without taking too much risk. The bank’s chief investment officer suggests buying billions of dollars of long-dated mortgage-backed securities paying ~1.6% interest.
Your boss has assigned you with building relationships with key clients in the tech industry. You have a generous expense account and are encouraged to use it to win business. You can take clients out for fancy dinners, golf outings, spa treatments, or even private jet rides. You can also offer them perks like discounted mortgages backed by their company or fund equity.
A well-known VC firm called Y Combinator is seeking a loan from SVB to fund their latest investment round.They have a strong track record of backing successful startups like Airbnb, Dropbox, and Stripe.They are considered low-risk by the bank because they have access to plenty of capital from other sources.They want to borrow $500 million from SVB at a low interest rate and with minimal oversight.
The Fed announces changes to its policies that will impact interest rates and deposit growth at banks like SVB.The Fed says it will raise its benchmark rate by 0.25% every quarter for the next two years.The Fed also says it will stop buying mortgage-backed securities by the end of the year.These moves are intended to curb inflation and cool down the overheated economy.There’s uncertainty about how this will affect SVB’s balance sheet which relies heavily on deposits and long-dated assets.
SVB’s balance sheet is starting to look shaky as deposit growth slows down and long-dated assets lose value.Startups begin burning cash faster as interest rates rise making it harder for them to raise money again.Some startups default on their loans or go bankrupt.Some VCs pull out their funds from SVB or demand higher interest rates.SVB’s long-dated mortgage-backed securities drop in value as interest rates rise.SVB tries to raise debt + equity but this only causes more confusion and desperation among depositors.The bank needs to take action quickly to shore up its finances before it’s too late.
Depositors start withdrawing their funds in large numbers as rumors about SVB’s financial troubles spread on social media.A viral tweet claims that SVB is insolvent and advises people to get their money out ASAP.A popular podcast host says that SVB is involved in fraud and mismanagement.A whistleblower leaks internal documents that show SVB’s balance sheet is riddled with bad loans and toxic assets.The bank is facing a sudden bank run and needs to take action quickly to stop the bleeding before it runs out of cash.
SVB enters receivership as valuations for long-dated cashflows decrease rapidly.The FDIC takes custody of all assets and announces that it will liquidate them at fire-sale prices.The future of the bank is uncertain.Some analysts predict that another bank will buy SVB’s assets and resume its operations.Others say that no one will touch SVB’s assets with a ten-foot pole.SVB’s employees, clients, and investors are left in limbo wondering what will happen next.
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The story, all names, characters, and incidents portrayed in this production are fictitious.
No identification with actual persons (living or deceased), places, buildings, and products is intended or should be inferred.
The story, all names, characters, and incidents portrayed in this production are fictitious.
No identification with actual persons (living or deceased), places, buildings, and products is intended or should be inferred.