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Silicon Valley Bank is no more.And in the last 24 hours, many founders,investors that I've talked to have been desperately trying to get their money out.

Our banking system is in is in a fundamentally different place than it was, you know, a decade ago.Many economists are now asking if the Fed will hit pause on further rate increases.The question now, though, is whether the collapse of this tech friendly regional bank is the start of something more serious, or just what happens when higher interest rates give companies less room for error?

Silicon Valley Bank wasn't like other banks.It dealt primarily with startups, tech companies and venture capital investors who funded those kinds of businesses.Not only does Silicon Valley Bank or Silicon Valley Bank provide services to tech startups, they provided financial services to big tech, to venture capital firms and even the individual GP's and high net worth individuals that often made their money from tech would use Silicon Valley Bank in multiple ways.?

Startups are a risky bet in the best of times, but when interest rates start creeping up, they get even riskier.Interest rates represent the cost of borrowing money, and fast growing tech companies need to borrow a lot of money to keep growing and in some cases to stay alive before their business models can start turning a profit.And with the Fed hiking interest rate sin order to fight inflation, that means riskier areas of the financial system like crypto and tech, are prone to getting hit the hardest.

This is really a story of an entire regional banking system that was in peril. And the canary in the coal mine may have been Silicon Valley Bank.And we're going to we're going to investigate.There's going to be plenty of things that all of these banks did wrong.But this parabolic move in rates.Right. Really dismantled the hold tomaturity portfolios of these banks.Its startup clients needed cash to shore up their books because of high interest rates. So they started withdrawing money at Silicon Valley Bank.

At the same time, Silicon Valley banks reserves were also vulnerable to interest rates. The bank's reserves were mostly backed by US government bonds that SVB bought when interest rates were much lower around one and one half percent when money came gushing in during the COVID crisis.With all of the stimulus money, SiliconValley Bank put a lot of that to work and in what were at the time high yielding assets that averaged only 1.6 or 1.7% when the Fed began hiking interest rates to four and one half percent to fight rising inflation, the value of those bonds took a big hit, and since SVB owned so many of them, so did its balance sheet.

Things came to a head after the collapse of crypto focused Silve rgate Bank on Wednesday, March 8th.High profile venture capitalists like Peter Thiel began telling people on social media to take their money out of Silicon Valley Bank.That kicked off a Twitter fueled bank run, forcing SVB's CEO to tell customers to, quote, stay calm during an emergency call Thursday afternoon, the same day SVB was forced to sell all the bonds it could at a $1.8 billion loss to help cover the run on deposits.Customers had withdrawn $42 billionfrom Silicon Valley Bank by Thursdayevening. The bank's balance sheet was deep in the red, a negative cash balance of $958 Million.The bank's stock nose dived until Friday morning.Silicon Valley Bank was done for if a buyer didn't materialize.And it didn't.

Contagion was spreading.Signature Bank was the next firm to gounder.Federal regulators quickly stepped into make sure depositors could access their money. Depositors at SiliconValley Bank have up to $250,000 in protection per account ownership category from coverage through the Federal Deposit Insurance Corporationor FDIC.But because the clientele at SiliconValley Bank weren't like regular bank customers, they were venture capitalists or tech startups.Many depositors had more than a quarter million dollars in deposits.Many of these depositors, as with one of your earlier guests, are basically running small and medium sized businesses.They're they're startups with with a few dozen, maybe people on the payroll.So we shouldn't think of these as all large and sophisticated.

Over the weekend, the US Treasury Department designated both SiliconValley Bank and Signature as systemic risks, allowing the government to come up with a plan that fully protects all depositors.Now, almost immediately, some criticized this move as another bail out of the banks, just like in the financial crisis of 2008.But unlike 2008, when taxpayers coveredthe bill to bail out bank giants like Wells Fargo, JPMorgan and Citigroup by the billions, SVB is still closing and taxpayers aren't on the hook for the cost to protect deposits.No losses.And this is an important point Nolosses will be borne by the taxpayers.Wall Street will pay the bill instead.The deposit insurance fund, which is funded through quarterly fees imposed on FDIC backed banks, is covering SVB deposits.At the same time, the Fed is offering new short term loans to banks to help them fight off any contagion.

The large banks do not have a problem.I mean, with all of the capital standards that they have been subjected to since 08-09, they actually been too flush with deposits.They don't want to make that many loans.You're not going to see a smooth transition.This will be very bumpy.But within the year, to your point, I think these banks will obviously maintain profitability and build up confidence in the system.Now that contagion is what everyone is watching for now.That's why other regional banks like First Republic Pac-west and UMB saw huge losses on Wall Street as investors feared more bank runs alongside the new lending program from the Fed and the deposit protection from the FDIC.These banks are shoring up their reserves.?

First Republic, for example, told CNBC it wasn't seeing that many deposits leave, but it still received new liquidity from the Fed and Jp morgan.Just to be safe.Americans can have confidence that the banking system is safe.Longer term regulators and the Biden administration are already talking about stronger regulations to prevent another SVB.

Now, at the same time, The Wall Street Journal reports that SVB faces preliminary investigations from the SEC and the Justice Department to find out what went wrong at Tech's favorite bank.And the one.Thing you can count on, Andrew, we'regoing to see a lot of criminal allegations with regard to the management of both banks.