Skip to main content

Buckling under the uncertainty!

Uncertainty is unnerving. It unsettles the balance. The tension it creates can be problematic in institutions, workplaces, or individuals. Take the example of the Silicon Valley Bank fiasco unfolding right now. 

Simplistically speaking - SVB bank, a leading start-up and VC fund bank, collected massive deposits post covid. Deposits went up from USD 60B in 2020 to over USD 200B by the end of 2022.

SVB Financials - a child arm of SVB Bank, invested a portion of deposits in Govt Bonds before Fed intervention with a series of base interest rates revision. Since Covid, Savings interest rates steadily rose to make Govt Bond's market value less attractive if they were to be sold for short-term needs.

To SVB bank's surprise, Bonds market values declined during the same period when Interest rates were rising. The vast cash deposits eroded as loads of start-ups that depended on doing well faced recessionary pressure and a slow-down, impacting product adoption and revenue uptick. This uncertain environment meant the start-ups were beginning to burn the cash faster, leading to SVB's deposits steadily declining in double-digit percentages!

This put pressure on SVB bank to manage fund outflows and to service new lending requests. 

And so, SVB bank announced that they planned to sell their security to support discharges and fund new lending requests. The news of the share sales led to share prices tanking and advisories from VC firms to its investment companies to take the deposits away from SVB bank.

One day after the advisory, the bank ran out of cash after companies rushed to take out cash worth USD 42B - about 25% of the bank's total deposits!

SVB bank is in a precarious situation with existing retail and business customers hugely concerned about their deposits. As a result, all account holders at the bank have now lost access to funds until further notice. There is a potential for the bank to default and create other cascading effects in its customer base and trust issues with Non-systemically important banks (Non-SIBs).

This, for sure, is an example of how SVB bank is buckling under the uncertainty arising out of poor short-term fund planning and poor long-term investment decisions under a poorly visible economy!

Comments

Popular posts from this blog

Checks and balances!

Defining a good purpose, setting a target goal and getting people working on them is usually not enough! There are too many aspects involved in getting the results we want. For example, there is an aspect of painting the big picture, working on motivation management, productivity tracking, building experimentation labs, and erecting resilient systems that systematize the workflows. Just putting bodies to work and defining milestones rarely achieves the right results. The other aspects that help march towards the milestones in an orderly manner, they are equally important. At the very least, they make objectives widely understandable and results more attainable. The job of a thought leader is to enable progress and enable recovery. Therefore, it is never enough to have just ideas. Those with ideas also have the responsibility to assemble the work environment in such a way as to create situations containing the energy disperses. Energy dispersal from lack of clarity, loss of motivation, ...

Choking the communication channel.

There are instances where everything looks in order. Structures are rightly in place. Right roles are defined. Responsibilities are distributed. Bi-directional open communication is expected to take place. And with that, collective work is expected to turn out productive. Yet, when the action begins, everything breaks apart. Productivity dwindles, cooperation is missing, and ad-hoc interactions are common-place That creates chaos. No one appears in charge even though there is someone responsible. It clearly is a sign of broken communication channels. A well-orchestrated workplace focuses on methods to communicate grounds-up and top-down. It encourages patient listening, internalizing and responding rather than reacting. All effective open communication channels are a result of making such communication possible. Often, the structures are set such that you centralize communication of every bit of your activity to someone in the hierarchy. Over time it turns into a permission-based inter...

Unentangle.

Some circumstances warrant protecting your time and effort. Saying no to everything and ruthlessly keeping space becomes your priority. Space that can hold the opportunity to take something that excites you. There are distractions thrown your way. Carrots are dangling in front of you, making you believe that a brighter future lies in following a defined path. They are others' views of the opportunities, not yours. When you are picky about what you want to do - the right way to go is to say no until you can say whole body yes to something that ignites you. Eventually, what you do may work or not. But you made your choice. Some other circumstances warrant a mechanism for creating opportunities. You ought to find ways to use your time and effort to do something worthwhile. Say yes to what comes your way, and keeping up with exploration provides experience. Experience in what among many options to pick from. By knowing what those options involve. When you are open about what you want t...