The Cloudcast podcast

Understanding How a Bank can Fail

3/12/2023
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This past week, Silicon Valley Bank (SVB) was closed by banking regulators. Let’s understand the basics of how this happened and why it matters to the tech industry. 

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HOW CAN A BANK WITH SO MUCH MONEY SHUT DOWN?

  • Banks never hold all the money that they have on the books as deposits
  • Banks manage a portfolio of investments
  • Banks try and manage the portfolio within certain ratios
  • Banks have regulations

LEVERAGE, INTEREST RATES, RISK, TIMELINES, COMMUNICATIONS and PANICS

  • Basics Part I - Systems built on Trust, Regulations to Enforce Actions
  • Basics Part II - What is SVB?, Deposits vs. Investments, Leverage, Interest Rates
  • Higher interest rates increases the risk of existing investments
  • Valuations vs. Valuations on Paper
  • Insurance, Diversified Portfolio
  • Cloud Analogies - Single vs. Multi-Cloud, Shared Resources Risks, Profitability of a Service, Best Practices vs. Practicality, Rising Costs (or Shortages) 

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