Impact of rising interest rates on Silicon Valley Bank
Posted on . 1 min read
TL;DR: the zero-interest-rate policy enticed SVB to take a position that it couldn't maintain once the Fed decided to raise interest rates.
What just happened to Silicon Valley Bank? And what does it have to do with inflation?
The Federal Reserve decided to bail out Silicon Valley bank on Sunday, after depositors faced the prospect of losing all of their savings beyond the $250k FDIC amount.
So what happened? According to the WSJ, "in a world of near-zero interest rates, SVB put the money in long duration fixed-income assets in search of a higher return."
But after the Fed raised interest rates to slow inflation, SVB had to liquidate those assets before they matured. This happened as many depositors began taking out their money, fearing (and causing) a bank run that would make it impossible for SVB to fulfill withdrawals.