The Collapse of Silicon Valley Banks Improves Risk Management for Other Commercial Banks

Abstract

Listen

Translate article

Silicon Valley Bank, a subsidiary of Silicon Valley Bank Financial Group, provides loans to venture capital as well as startups. Silicon Valley Bank primarily serves technology-based companies. Our paper focuses on the implications of the Silicon Valley bank bankruptcy for other commercial banks from four aspects. First, what are the risks in the business operation model of Silicon Valley banks; second, what caused the bankruptcy of Silicon Valley Bank; Third, the impact of the bankruptcy of Silicon Valley Bank; Fourth, the bankruptcy of Silicon Valley Bank has implications for the development of Chinese commercial banks. The main reason for the bankruptcy of Silicon Valley Bank was the Fed's interest rate hike. As a traditional commercial bank, Silicon Valley Bank's profit model is mainly based on interest differential. Affected by the epidemic, the demand for loans from Silicon Valley banks declined, so Silicon Valley banks chose to buy US Treasury bonds and MSBs. The Fed's interest rate hike coupled with a large amount of money printing in the United States has led to inflation. The sharp depreciation of US Treasuries and MSBs, coupled with the end of the mobile Internet cycle, forced Silicon Valley banks to sell a large number of unmatured bonds. Eventually a bank run occurred, leading to the bankruptcy of Silicon Valley Bank.