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Medieval Italy, the Peruzzis & the world's first bank run
The world's first bank run: the Peruzzis of medieval Italy | GZERO World

Medieval Italy, the Peruzzis & the world's first bank run

Bank runs. Market volatility. Panic in the streets. When I say we’ve been here before, I don’t just mean 2008 or 1929. One of the earliest recorded bank runs dates back to the 14th century. Italian city-states like Florence and Venice sat at the crossroads of trade routes between Asia and Europe and were financial hubs. In the early 1300s, the “Peruzzi” family quickly became one of the most powerful and wealthy in Florence, through a highly profitable textile trade that focused on imported English wool.

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Is your money safe? Larry Summers on the banking crisis
Is your money safe? | Larry Summers on the banking crisis | GZERO World

Is your money safe? Larry Summers on the banking crisis

Banks, in many ways, are the backbone of the economy, but when Silicon Valley Bank and Signature Bank recently failed, it raised some tough questions about the stability and regulation of financial institutions. On GZERO World, Ian Bremmer and former US Treasury Secretary Larry Summers dive deep into the crisis and explore the complex factors that led to the banking turmoil.

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Silicon Valley Bank collapse: Not 2008 all over again
Silicon Valley Bank collapse isn't the same as 2008 financial crisis | World In :60 | GZERO Media

Silicon Valley Bank collapse: Not 2008 all over again

Ian Bremmer shares his insights on global politics this week on World In :60.

With the Silicon Valley Bank collapse, is it 2008 all over again?

There's one very clear way that it's not, which is that it's not a big enough crisis for people to come together. And remember, after 2008, everyone understood that we needed to do everything possible to get the markets functioning, get trust in the system again, and avoid a great depression. Nobody's saying that right now. And it's not just because the US political system is more divided, it's also because people feel like it's fine to go after the "woke" banks. It's fine to go after the Trump era deregulation around the medium size banks. And everyone can point at their favorite villain while you don't really need to do a hell of a lot beyond the bazooka that Secretary Yellen threw at SVB and Signature Bank this weekend. So no, in that regard, it's very much not 2008 all over again. In some ways I'm happy about that and other ways I'm not.

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A customer is escorted into the Silicon Valley Bank headquarters in Santa Clara, California, on March 13, 2023.

REUTERS/Brittany Hosea-Small

SVB collapse: What happened and why it matters

Wondering about all the fuss over the collapse of Silicon Valley Bank? To get a handle on what happened and why it matters, we talked to Celeste Tambaro, managing director of Eurasia Group’s financial institutions practice. This interview has been edited for length and clarity.

GZERO: How did SVB get into trouble?

Celeste Tambaro: Although SVB was not a widely recognized name among US banks up until last week, the bank has been around for about 40 years and has built an important niche servicing investors and entrepreneurs in the emerging technology space. As you can imagine, given SVB’s positioning in the market, it experienced significant growth during the investment boom in private technology companies that occurred in the wake of the pandemic. This investment surge was fueled, in part, by continued low-interest rates and easy financial conditions during the late-2020/early-2021 period that made capital cheap and left the VC-funded start-up world flush with cash. This cash flowed into SVB in the form of deposits, or in banker’s terms, its funding base, which reached nearly $190 billion at its height. As a result, the bank was left with a lot of excess liquidity earning very low yields. In an effort to earn higher returns on this liquidity, SVB invested in a portfolio of around $120 billion longer duration U.S. Treasury bonds and fixed-rate mortgage securities. Ultimately, SVB was sitting on a highly concentrated bet on tech start-ups and a portfolio that was vulnerable if interest rates rose quickly.

And we all know what happened next. Russia invaded Ukraine, hyper-charging pandemic-driven global inflation, leading the Fed and Central Banks around the world to hike rates fairly aggressively in order to get ahead of the inflation curve. As a result, financial conditions have tightened, capital has become more expensive, and the growth outlook has become cloudier. This environment has weighed on investor sentiment in the tech space, so cash has not been flowing as freely in the start-up community, nor into SVB as new deposits. In addition to the negative impact that rising rates had on SVB’s deposit base, they also led to a decline in the value of SVB’s longer-duration portfolio as bond prices fell.

As deposit withdrawals picked up pace in February and early March, SVB’s management decided to shore up its liquidity and sell down $21 billion of its longer-dated securities portfolio. The problem was that any sale would be at a loss given the sharp move in interest rates. The sale took place and then things got worse. On Wednesday, management reported a realized loss of $1.8 billion on the sale – it was also attempting to raise an additional $2.25 billion of capital to bolster its balance sheet. But time was not on the bank’s side. SVB was quickly losing the confidence of the bond rating agencies, the market, and its key customers, and last Thursday the capital raise fell through. High-profile VC investors were sounding the alarm on the health of the bank, and liquidity concerns quickly shift to concerns that the SVB was insolvent. By Friday morning, a final frenzy to withdraw deposits, a so-called run-on-the-bank, occurred. Last-ditch attempts to sell the bank fell through, and by Friday afternoon SVB as we knew it was gone. That old familiar lesson yet again: Banks can go to zero if not run properly and the market and customers lose confidence.

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Civil War 2.0, Big Brother vs. Big Tech, and Banking Troubles in China: Your Questions, Answered

Civil War 2.0, Big Brother vs. Big Tech, and Banking Troubles in China: Your Questions, Answered

Happy Friday, everyone!

It’s still summer so you know what that means…

You ask, I answer.

Note: This is the third installment of a five-part summer mailbag series responding to reader questions. You can find the first part here, the second part here, and the fourth part here. Some of the questions that follow have been slightly edited for clarity. If you have questions you want answered, ask them in the comments section below or follow me on Facebook, Twitter, and LinkedIn and look out for future AMAs.

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Ferdinand Marcos Jr. during a campaign rally in Metro Manila, Philippines.

REUTERS/Lisa Marie David

Hard Numbers: Marcos’ tax bill, Russian cash in Swiss banks, Cubans sentenced, Mali vs French media

3.9 billion: Philippine presidential frontrunner Ferdinand Marcos Jr. owes a whopping $3.9 billion in unpaid taxes from the estate of his dad, the late dictator. Marcos, of course, says this is fake news, but his rivals hope it'll hurt his chances in the May 9 election.

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A U.S. one dollar banknote is seen next to Turkish lira banknotes.

REUTERS/Murad Sezer

Turkey's inflation, Chinese loans, Nigerian oil spill, deadly cocaine

49: Turkey recorded an annual inflation rate of almost 49%, a 20-year-high, on Thursday. President Recep Tayyip Erdogan, who has said soaring inflation would be temporary, continues to prioritize exports and remains opposed to interest rate hikes. Turkey’s Central Bank meets on Feb. 17 to discuss interest rates but is not expected to change course.

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What is Coinbase, the first major cryptocurrency company to go public?
Coinbase Is First Major Cryptocurrency Company To Go Public | Cyber In :60 | GZERO Media

What is Coinbase, the first major cryptocurrency company to go public?

Marietje Schaake, International Policy Director at Stanford's Cyber Policy Center, Eurasia Group senior advisor and former MEP, discusses trends in big tech, privacy protection and cyberspace:

What is Coinbase and why is it such a big deal that it's going public?

Now, Coinbase runs the US's largest cryptocurrency exchange and holds tens of billions of dollars' worth of bitcoins. When it went public on Wednesday, it was the first major cryptocurrency company to do so.

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