Welcome to Fantastic Females, our adventure to finding the mythical island of freedom together. My name is Rupali and I’m here with my co-host Kalyani. We are your next-door finance experts sharing our experiences in the world of money and energetics. Today, we are re-recording an episode of Fantastic Females because our previous recording didn’t meet our quality standards. We apologize for the inconvenience but we hope you’ll enjoy this episode. To provide some context, let’s talk about the banking system and how banks make money. Many people believe that banks are a safe place to keep their money. However, banks are not just holding your money in a safe locker. They are businesses that invest your money to generate profits. When you deposit money in a bank, they use a small percentage of it as liquid cash and invest the rest in various assets such as loans, stocks, properties, and more. This allows them to earn a higher return on your money than what they pay you as interest. Now, let’s discuss what happened with Silicon Valley Bank (SVB) and the banking system collapse. SVB, along with Silvergate Bank and First Republic Bank, experienced a collapse due to a series of events that took place over the past two years. These banks had a significant increase in deposits, especially from the tech industry, which resulted in a surplus of cash. SVB, in particular, invested a large portion of these deposits in long-term government bonds, considering them to be safe investments. However, when interest rates started to rise, the value of these bonds dropped, leading to a decrease in SVB’s assets. At the same time, many tech and growth companies that were banking with SVB were facing financial difficulties. As they withdrew their funds from the bank, SVB faced a double blow of decreasing assets and declining deposits. To cover their losses, SVB had to sell a part of its bond portfolio at a realized loss of $1.8 billion. It’s important to understand the difference between unrealized and realized losses. Unrealized losses are paper losses that occur when the value of an asset drops but is not sold. However, when an asset is sold at a lower value than its initial cost, it becomes a realized loss, affecting the bank’s financial position. This banking system collapse highlighted the risk of concentrated exposures and the importance of diversification. While SVB focused heavily on the tech industry, other banks had concentrated exposures in different sectors like cryptocurrencies. The combination of increasing interest rates, declining asset values, and withdrawals from struggling companies led to the collapse of these banks. Overall, this episode sheds light on the functioning of banks, their investments, and the risks involved in the banking system. It serves as a reminder that even though banks are considered safe, they are still susceptible to economic fluctuations and the need for prudent risk management.