Let's get things started with cnbc's senior markets correspondent Bob pasani also with me is the Wall Street Journal Capital markets reporter Corey tree Bush Bob let me start with you this this Silicon Valley Bank and I saw the headline is Peter Thiel sort of started this and he's obviously a pretty big Tech uh in Silicon Valley uh I guess if.
You will capitalist or a tech investor if you will what what made him do this because it seemed to trigger a run on this Bank well it there's larger concerns here so Silicon Valley Bank is a very peculiar kind of animal it's not a typical Regional Bank that we see this was very involved in the Innovation economy these.
Uh startups were very involved and the bank was very involved with the startups providing lending and support so a lot of these startup companies in Silicon Valley had deposits there and for example they were using those deposits to make payroll in the last oh six eight nine months we have seen real difficulties as interest rates rise.
These startups don't make any money so they have to constantly be borrowing money it's been tough to do that so instead of doing that they've been selling down or going into their deposits and essentially using that to fund their operations well the banks so noticed this and saw a dramatic drop in their deposits this didn't happen.
Everywhere else except here and they had to sell some assets to deal with those deposits uh going out so what they found was they had to sell bonds that had dropped in price and that's what got everybody attention so I don't I don't think it's it's not necessarily teal that's dealing with this there's a larger problem here with the fact that.
Silicon Valley has had problems not being able to fund their operations because they can't borrow as easily and they're drawing down the available cash so again this is a pretty particular situation right now so it sounds like what you're saying is that this that that now that the Free Money Train is over thanks to the fed and the interest.
Rate hikes I mean is are we going to find out that there are a lot more of these uh Silicon Valley startups that maybe aren't what we thought they were and they're about to be caught with their pants down here next week well that's a contagion question and the the answer is I don't know but I tend to.
Uh tend to doubt that I'll tell you what the real issue is the real issue is is related to this issue and that is that the cost of deposits are going up my mother called me two weeks ago and said Robert I'm taking money out of my bank account and I'm buying Bank CDs and two-year treasuries at five percent why shouldn't I do that well people around.
The country are doing what my mother's doing they're taking their Bank deposits and they're buying CDs and short-term government treasuries that means deposits are going down in a lot of these Banks the banks are going to have to pay their depositors more money what that means is there's going to be a hit to earnings that's it's going to be a.
Cost and that's good for the depositors my mother is going to be very very happy but it's a hit to the bank earnings that's a separate question it's related to that Silicon Valley Bank question but it's a it's a related question and that's one of the reasons the banks have had a lot of problems this week independent of this all right let me.
Bring in Corey dribosch here so Corey uh the near term Monday morning what are you looking forward to see is this contagious or not well I think on Monday is so when the FDIC has said and then depositors will have access to their funds um by Monday so I think we have to see what happens I know that a lot of my.
Conversations right now is with uh startup fund Founders who had money at Silicon Valley Bank and some saw the writing on the wall yesterday and were pulling their money out and transferring it to other accounts but that means you had to have an account open typically at another bank to be able to move your money into a wire transfer others have.
Millions of dollars still tied up and that's above the insured amount so I think everyone is in a little bit of a panic mode right now that I've been talking to trying to figure out what's going to happen and when people are panicking right they sometimes do maybe not rational things well I was just going to say what what.
Is what is something the FDIC could do to almost prevent the irrationality oh maybe Bob can answer that better than I can I'm not sure I think what everyone was hoping for last night into the very late hours was that the share sale that um svb was attempting to do with that if that was going to go through because.
Really when you think about it they had a couple billion dollar hole they needed to fill and if they had been able to do this Capital raise uh by selling additional stocks and they've been able to raise that money that would have calmed a lot of investors and would have calmed depositors to know that things were okay and that could have continued.
When it came this morning and news broke that the bank was unable to complete that stock sell that Capital raise that was a real Tipping Point Bob what does it say you know I remember during the 2008 financial collapse uh I think it was JP Morgan said yeah we'll take Merrill Lynch um why would wouldn't some of the bigger.
Banks want why would they want to take on svb I mean that to me is a bit of a yellow flag is it not well um the answer is uh be careful because when what happened in 2008 and 2009 it was Bank of Americans are called Merrill Lynch but the important thing is the all of a sudden these Banks took on some very big liabilities potentially.
And a lot of things when you lift the rock up a lot of things you discovered here now in theory Silicon Valley Bank has more assets than it does liabilities I saw 200 billion dollars in assets and 175 billion in deposits deposits are liability So in theory you're right we should be able to find a seller for this hopefully excuse me a buyer for this.
Hopefully over the weekend and that would alleviate a lot of concerns here however it may take longer than that in this kind of uh environment in theory the there's plenty of assets here and people can be made whole if that doesn't happen you've got a problem the FDIC only insures up to 250 000. now you've got a government decision is the bank.
Too big to fail right well let me ask you that is it too big to fail well I was just going to note that about the assets yes it had 170 billion 75 billion assets but there's been a lot of taking out a lot of people have been taking out their money so that's what I've been hearing also in conversations about do you want to take on.
Um Silicon Valley Banks assets right now there's not if everyone's leaving what are you fine if that makes sense it does I see what you're saying there if everybody's already fleeing all right Bob pasani core drubas thank you for trying to help us understand this get us started uh and we will all cross our fingers through.
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