Interest rate hikes by the Fed has always been a cause for concern, because they could end up raising too much or too little (most of the times raising too much has been the problem). So in 2008 to quell the housing bubble the fed started raising rates, they did it 17 times (probably 0.25% at a time to end up at 5.25% in June 2006. Two banks collapsed Lehmen Brothers and Washington Mutual, one was saved i.e. (Merril Lynchwas bought over) and one insurance company (AIG) was also saved. This time around the cause, you guessed it right was also rising interest rates. So SVB had substantial deposits from tech startups who were worldly wise or should we call them “weblywise” i.e. were well aware of SVB’s status due to the rising interest rates. SVB had invested a substantial part of the client deposits in Long term bonds in 2021 which looked pretty safe. Then the US Fed started raising rates like they did in 2007/2008 but this time it was being done to quell inflation which had risen to 9% plus. So the US Fed started raising rates and SVB was sitting on long term bonds which were paying out lower coupons. The tech startups in the normal course of things withdrew funds to pay their regular expenses. The Silicon Valley Bank had to repay the depositors and needed cash. The bank had to sell a good amount of the Long term bonds purchased in 2021 at a loss to meet depositors withdrawals, In my opinion when the fed funds rate started rising above the rates of the coupons SVB had purchased with the long term bonds it got into trouble. SVB would probably have got away with it (the loss from the sale of bonds was probably around 10%). So in my opinion they would have survived the crisis. But (SVB) they talked about this on the internet and the “weblywise” techies started to panic and started withdrawing more of their deposits and then SVB probably had to sell more bonds at a loss and so on and so forth. The US government has stepped in to handle the crisis for now, they think there may not be much contagion, the government body protecting depositors money (FDIC) has been asked to step in and assure all investors/depositors that they can withdraw their deposits without any restrictions. They have identified another bank in probably a similar situation and quickly closed the bank (Signature Bank was closed by the FDIC last week). Now the US Fed may have been worried about inflation biting into the US consumers pockets, but the fall out from rising interest rates like SVB & Signature Bank and probably others lurching in the dark will keep the US regulators on their toes or should we say fingertips. So what does it mean for you and I, there will of course be contagion globally, we know its an issue in Canada, the UK and several startups in Asia that have deposits in SVB. If you are invested in any tech startup please check if they have deposits with SVB or similar institutions. SVB was the 16th largest bank in the US and tech startups relied heavily on the bank for all their needs including wealth management and personal banking. The global stock markets took a big hit on the news of SVB going belly-up but Asia did okay on Monday 13th March 2023. The US futures were up nearly 1.6% in the morning but is quickly going down as I write this blog. Europe has also opened negative around -2.0%. Have they discovered something dark and messy which can cause more pain for the financial markets, we have to wait and watch. Meanwhile your best bet is to diversify as much as possible while investing, that is your only free lunch in Financial Investments and your only protection from too much downside risk.