Introduction
Silicon Valley Bank (SVB) was once America’s 16th largest commercial bank and provided banking services to nearly half of all US venture-backed technology firms. However, recently it has fallen from grace, resulting in one of the largest bank collapses since the 2008 financial crisis. The bank’s decline has been a gradual process, with warning signs appearing as early as 2021 when its clients began running down their deposits, forcing the bank to sell off its liquid assets. The bank’s collapse has sent shockwaves throughout the banking industry and raises questions about the fragility of the banking system. In this article, we will take an inside look at the rise and fall of Silicon Valley Bank and explore the factors that led to its demise.
Is There a Simple Explanation on Why SVB Collapsed?
The Silicon Valley Bank (SVB) collapse occurred suddenly and was due to a classic run on the bank, during which customers rapidly withdrew deposits from the lender. SVB was a lender to some of the biggest names in the technology world and was the largest bank to fail since the 2008 financial crisis. The root of its demise, however, goes back several years, and it can be traced to the U.S. Federal Reserve raising interest rates and souring market conditions, which led to the bank’s failure.
In response to the collapse, the FDIC created a new entity, making depositors and borrowers customers of Silicon Valley Bank, N.A. However, late on Sunday, US agencies extended a guarantee to cover all deposits at the bank, as well as for customers at a second smaller institution, Signature Bank, that collapsed over the same weekend.
What is a Bank Run?
A bank run is a phenomenon that occurs when a large number of bank customers rush to withdraw their deposits all at once, typically due to a loss of confidence in the bank’s ability to meet their obligations. A bank run can be a self-fulfilling prophecy and may cause the bank to collapse if it does not have sufficient reserves to meet the withdrawal demands of its customers.
The Silicon Valley Bank collapse that occurred recently was triggered by a classic bank run, during which customers withdrew their deposits from the lender in a short period, leading to its sudden collapse. The loss of confidence in the bank’s ability to meet its obligations was likely caused by the bank’s inability to weather the challenging economic and market conditions, leading to the failure of the bank.
Various News Outlets Have Suggested That SVB Collapsed Due to Yield Curve Arbitrage. What Does This Mean?
Although there are various factors that may have contributed to the collapse of Silicon Valley Bank (SVB), including its exposure to the tech sector and challenging economic conditions, the term “yield curve arbitrage” has been used in various news articles regarding SVB collapse.
Yield curve arbitrage is an investment strategy that involves taking advantage of the differences in interest rates of different maturities of bonds in the market. The strategy seeks to profit from discrepancies in the yield curve by buying and selling bonds of different maturities in a way that locks in a positive spread between the yields.
The newspapers Guardian writes, “Reportedly, SVB’s downfall wasn’t due to the kind of bad lending practices that led to the 2008 crisis and that represent a fundamental failure in banks performing their central role in credit allocation. Rather, it was more prosaic: all banks engage in “maturity transformation”, making short-term deposits available for long-term investment. SVB had bought long-term bonds, exposing the institution to risks when yield curves changed dramatically.”
In any case, it is worth noting that the collapse of SVB has raised concerns about the possibility of a broader banking meltdown and has led to emergency measures being taken by the US federal government to protect all deposits at the bank.
What If I Have Money in a Bank Savings Account…Am I at Risk?
The answer to this question may depend on the specific circumstances of the bank and your account. However, generally, if you have money in a savings account at a bank that experiences financial difficulties or fails, your funds should be protected up to a certain amount by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) if the bank is a credit union. The standard insurance limit for deposits held in a single account is $250,000 per depositor per insured bank, and this amount may be higher for certain account types or ownership categories.
It’s important to note that the interest earned on your savings account is taxable as income by the federal government, and any interest earned over $10 is reported to the IRS by the bank or other financial institution where the account is held. Therefore, if you have a significant amount of money in a savings account over and above your emergency reserves, you may want to consider other investment options that can provide higher returns, such as a structured asset class portfolio that invest in global stocks and bonds—of course this is after considering your risk tolerance, investment goals, and financial situation in the context of a comprehensive financial plan.
A Reminder That There is No Free Lunch When It Comes to Investing: Risk and Return are Always Related
When it comes to investing, there is no free lunch, meaning that investors cannot expect high returns without taking some degree of risk. The risk-return tradeoff is a fundamental concept in investing, which suggests that potential return rises with an increase in risk. Higher levels of risk are associated with higher potential returns, and lower levels of risk are associated with lower potential returns. Risk can refer to both the possibility of a loss and the magnitude of that loss, and assigning a high level of risk to an investment doesn’t necessarily mean the investor is likely to lose money, but it indicates that the investment has a higher possibility of not meeting its expected return. In short, risk and return will always be related, and investors must carefully consider the risks associated with an investment to ensure that the potential return is worth the potential risk involved.
When It Comes to Investing Diversification is Key
Diversification is an important and prudent strategy in investing that can help investors manage risk and improve long-term portfolio performance. By spreading investments across a variety of different asset classes, industries, and geographies, investors can reduce the impact of any one individual investment or event on their overall portfolio. This is because different asset classes perform differently in different economic environments.
By diversifying, investors can also structure a portfolio based on their risk tolerance and investment goals, with the ability to balance higher-risk and potentially higher-return investments with more conservative ones. A well-diversified portfolio can help protect against market volatility, currency fluctuations, and other factors that may affect individual investments.
In short, diversification can help investors achieve a broad asset class portfolio that exposes them to global asset classes, while reducing overall risk. As the saying goes, “there is no free lunch in investing,” and diversification is an important way for investors to manage risk and achieve long-term financial goals.
Conclusion
In today’s complex financial world, having a comprehensive financial plan is more important than ever. A financial plan can help you understand your current financial situation, set achievable goals, and develop strategies to achieve those goals. One important aspect of a financial plan is portfolio transparency. Knowing what is in your portfolio and how it aligns with your goals is essential for making informed investment decisions–it’s crucial to not be narrowly invested in any one asset category. Structured Asset Class Diversification can help reduce risk and improve long-term portfolio performance. We review your portfolio to ensure that it aligns with your risk tolerance and investment goals. Understanding your risk is crucial in developing an appropriate financial plan, and reviewing your portfolio regularly can help ensure that it remains aligned with your goals and risk tolerance.
Have a great weekend!
Source: Ballentine Capital Advisors
Golf Tip of the Week
It Might Be Time To Ditch Your 3-Wood. Here’s Why
When testing fairway woods for the Golf Digest Hot List, our players have the option of hitting 3-woods, 5-woods or both. For some of those who hit both, an interesting trend developed: they hit the 5-wood farther than the 3-wood.
One of the testers that saw an increase with more loft was Anand Mudaliar, who averaged 221.12 yards with the 5-wood but only 216.14 yards with the 3-wood, according to data gathered from the Rapsodo MLM2 Pro launch monitor.
A 40-year-old 9-handicapper from Philadelphia, Mudaliar stands just 5-foot-7 but generates a driver swing speed of 105 miles per hour. An avid player, he manages 55 to 60 rounds per year. He currently carries a 3-wood but not a 5-wood.
“I’m shocked by that data point but probably shouldn’t be,” says Mudaliar. “At one point a few years ago, I stopped using a 3-wood because it was difficult to hit and I went to the 5-wood more often. Now I know why.”
To be fair, the Rapsodo data did show that Mudaliar’s longest hits were slightly longer with 3-wood, but he was far more consistent with the 5-wood. In addition, his worst shots, including a couple of cold tops, were magnified with the 3-wood.
Golf Galaxy’s Chris Marchini sees this kind of result often during fittings. “I make players prove to me they can hit a 15-degree 3-wood before I fit them into one,” he says. “I routinely see the 5-wood carrying longer with almost all types of players. It’s just easier to get in the air, plus it’s more forgiving. The more loft, the less curve to the shot. The slightly shorter shaft is easier to control as well. For many players there is just zero purpose to having a 15-degree wood in the bag.”
That includes some PGA Tour players. On any given week approximately 10 to 15 percent of the field plays their longest fairway wood with more than 15 degrees of loft. Although not the case for them (or even Mudaliar), a common reason why the 5-wood yields better results for most is that many golfers just don’t produce the adequate speed to create enough lift and spin to make a 3-wood achieve adequate height. For them, a higher-lofted fairway wood can increase performance and forgiveness, while being more versatile, too.
Marchini is quick to jump on the versatility aspect, citing the higher loft as not only being better out of the rough, but also for use around the greens for a bump-and-run type shot. “When you have nothing but grass in front of you, a 5-wood can be a good club to chip with instead of a wedge. You don’t need to be nearly as precise, and the odds of an acceptable shot go way up.”
As for Mudaliar, no further convincing is needed. “I have been thinking of changing some things and getting more precise with longer clubs,” he says. “I am fairly decent distance-wise but I want to give myself better chances on par 5s and have better distance control with my fairway wood. I also like the idea of high launch and ability to land shots softly into the greens. The numbers don’t lie as to which club is better for that.”
Tip adapted from golfdigest.comi
Recipe of the Week
Lamb Chops With Garlic And Rosemary
4 Servings
Ingredients
- 8 (6-ounce) loin lamb chops, fat trimmed
- Kosher salt and freshly ground black pepper
- 2 tablespoons vegetable oil
- 2 cloves garlic, smashed
- 1 cup dry red wine
- 1 teaspoon minced fresh rosemary leaves
- 1 cup chicken broth, low-sodium canned
- 2 tablespoons unsalted butter, cut into bits
- 2 teaspoons whole-grain mustard
- 2 tablespoons heavy cream
Instructions
- Heat a large skillet over medium-high heat. Dry the lamb chops well and season with salt and pepper, to taste. Add the oil to the pan and heat until shimmering. Lay chops in the pan and cook, turning once, until an instant-read thermometer inserted into the sides of the lamb registers 125 degrees F, about 4 minutes per side. After cooking the lamb on each side, stand it up on it’s edges to brown the sides as well, about 2 minutes more. Reduce the heat if needed so the browned bits remaining in the pan don’t burn. Remove chops from the skillet and set aside in a warm place.
- Pour off all but 1 1/2 tablespoons fat from the skillet. Add the garlic and cook, tilting the skillet to keep the garlic submerged in the fat, and cook until golden, about 1 minute. Add the wine and rosemary, stirring up browned bits from the bottom of the pan, and simmer over high heat until syrupy, about 3 to 4 minutes. Add the chicken broth and cook until reduced by about half, another 5 to 6 minutes. Remove pan from the heat and briskly whisk in the butter. When the butter has incorporated, whisk in the mustard and heavy cream. Season with additional salt and pepper.
- Serve 2 chops per person with the sauce.
Recipe adapted from foodnetwork.comii
Health Tip of the Week
Supplements: What You Really Need
Vitamin D
It helps keep your bones strong. People who have healthy levels of it may be less likely to get certain conditions, but more research is needed. Your body makes vitamin D when you’re in sunshine. It’s also in salmon, tuna, and fortified foods. If you’re low on vitamin D, your doctor may suggest a supplement. But several large studies show no benefits to otherwise healthy adults. And taking too much is bad for you.
Probiotics
Also called “good” bacteria, probiotics are found in fermented foods like yogurt, kombucha, miso, and sauerkraut. They can change the balance of good and bad bacteria in your body and may help improve digestion, soothe skin irritation, lower cholesterol, support your immune system, and more. But it’s not yet clear if probiotics in supplements help treat conditions, and most people don’t need to take them every day.
Multivitamins
If you know your diet isn’t that healthy, can a multivitamin help you fill in the nutritional gaps? Not necessarily. Many studies have found that multivitamins don’t fight memory loss, heart disease, or cancer. Meanwhile, getting too many nutrients in pill form can cause harm. Experts usually recommend food as the best source for vitamins and minerals.
Folic Acid
Here’s a vitamin you definitely want to make sure you have enough of if you’re a woman who’s planning to get pregnant. Getting enough folic acid can help prevent birth defects in a baby’s brain and spine. You need 400 micrograms (mcg) per day, and the CDC recommends taking that much in a supplement, along with whatever you get from your diet.
Fiber Supplements
Fiber is in veggies, fruits, whole grains, seeds, nuts, and legumes like beans. It helps cut cholesterol, control blood sugar, and improve digestion. Women under 50 should get 25 grams a day, and men should get 38 grams. But only 5% of us hit those numbers. Taking a fiber supplement is usually safe, but ask your doctor, especially if you take medicines like aspirin. Start slowly to avoid gas and bloating, and be sure to get enough water.
Fish Oil
Fish like salmon and sardines have healthy fats called omega-3s that can lower your risk of heart disease. If you don’t eat fish, there are fish oil supplements with omega-3s, like EPA and DHA, and there are algae-based supplements. But more research is needed, because omega-3s in pills may work differently than the ones in fish. If you take a pill, the FDA says to keep the dosage to less than 2 grams per day of EPA and DHA combined.
Calcium
Unless your doctor recommends it, you probably don’t need a calcium supplement. Some research has linked them to a greater risk of heart disease and prostate cancer, but that link isn’t clear. You can strengthen your bones with exercise like walking, tennis, dancing, and lifting weights. And fill your plate with calcium-rich foods like yogurt, almonds, dark leafy greens (for vitamin K), and fish or fortified foods for vitamin D.
Joint Supplements
Glucosamine and chondroitin, two types of arthritis supplements, are among the most popular supplements sold in the U.S. They are found naturally in human cartilage. Research on whether they can ease arthritis pain or prevent arthritis is mixed. Still, most experts say there’s no harm in trying them, in case you’re one of the people who gets relief from them. As with all supplements, it’s best to check with your doctor first.
Vitamin C
Your body can’t make vitamin C, so you have to get it from food. And it’s easy to hit the recommended daily amount. Just 3/4 cup of orange or half a cup red bell pepper both provide more than 150% of what you need. So you probably don’t need a supplement. There are popular products on the market with mega-doses of vitamin C that claim to prevent colds (or at least shorten how long they last), but research on that has been inconclusive.
Melatonin
This hormone plays a role in sleep. Your body makes it, and it’s sold in pill form. Because there’s not much evidence about the safety of taking melatonin long-term, you’re better off trying it for short-term problems, like jet lag or a temporary bout of insomnia. Side effects can include drowsiness, headache, dizziness, or nausea.
Magnesium
This mineral supports your body in lots of ways. It gives you energy and keeps your heart healthy, for example. But even though it’s found in a range of foods, including nuts, seeds, whole grains, and leafy greens, most Americans don’t get enough. If you’re interested in taking a magnesium supplement, ask your doctor which type is best. There are several options.
Coenzyme Q10 (CoQ10)
This is an antioxidant your body makes, and you can get more of it in pill form. People try to use CoQ10 to fight migraines, protect the heart, and improve symptoms of Parkinson’s disease. But the research on whether it works is limited and conflicting. Side effects include insomnia and upset stomach, but they’re usually very mild. CoQ10 can interact with blood thinners and insulin treatments, so check with your doctor before taking it.
Turmeric
This yellow-orange spice may help tame inflammation, which is part of a wide variety of conditions. It’s not yet clear if turmeric thwarts any particular health problems. As a supplement, it’s sometimes labeled as curcumin, which is one of the active ingredients in turmeric that has been the focus of scientific studies. Up to 8 grams per day is considered safe. And it’s fine to add the spice to your foods.
Vitamin B12
You need it to make red blood cells and DNA and to keep your nervous system healthy. It’s found in animal products like fish, meat, eggs, and milk, so vegetarians and vegans may come up short, as can adults over the age of 50 and people with digestive problems like Crohn’s disease. B12 supplements are sold as pills or shots. B12 shots have become trendy as a way to try to boost energy and slim down, though no research shows they work.
Keep in Mind
Everyone is different. If you have a specific health concern that you think supplements might help with, ask your doctor. Your doctor can check to see what’s safe for you, tell you about potential side effects, and add your supplements to your health record. The FDA doesn’t approve supplements, unlike prescription drugs. So do your research and talk with your doctor first.
Tip adapted from webmd.comiii
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Ballentine Capital Advisors is a registered investment advisor. The advisory services of Ballentine Capital Advisors are not made available in any jurisdiction in which Ballentine Capital Advisors is not registered or is otherwise exempt from registration.
Please review Ballentine Capital Advisors Disclosure Brochure for a complete explanation of fees. Investing involves risks. Investments are not guaranteed and may lose value.
This material is prepared by Ballentine Capital Advisors for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation or any particular security, strategy, or investment product.
No representation is being made that any account will or is likely to achieve future profits or losses similar to those shown. You should not assume that investment decisions we make in the future will be profitable or equal the investment performance of the past. Past performance does not indicate future results.
Advisory services through Ballentine Capital Advisors, Inc.
i https://www.golfdigest.com/story/ditch-3-wood
ii https://www.foodnetwork.com/recipes/food-network-kitchen/lamb-chops-with-garlic-and-rosemary-recipe-2009041
iii https://www.webmd.com/vitamins-and-supplements/ss/slideshow-supplements-myths-facts
