If I asked you to look after £75bn, where would you put it? Assuming you managed to resist blowing the lot on a lifestyle of spectacular hedonism (nobody’s perfect), you’d probably walk into a bank and ask for £75bn’s worth of the safest investment in the world.
This was the fatal assumption that led Silicon Valley Bank (SVB) to become the second-largest bank failure in history. SVB was the 16th-largest bank in the US, and primarily served the tech industry. When a promising startup company received funding from venture capitalists, they would often deposit the money with SVB. During 2021 the amount invested by venture capitalists more than doubled on the previous year, to $612bn worldwide. Deposits flooded into SVB, and the bank – faced with the apparently enviable problem of having more money coming in than it could ever lend out – invested $91bn (£75bn) in “long-dated securities” such as ten-year Treasury bonds.
A Treasury bond is a loan to the US government, which pays a “coupon” (interest payment) each year until it repays the money. The US is the world’s largest economy and has never defaulted on its debt, so $91bn in “held to maturity” investments represented, to someone at SBV, ten years of guaranteed income from the safest investments in the world.