How does a modern bank collapse? And is it sudden or is there warning? Seems sudden in the news, but I struggle to understand how a bank can lose billions of dollars suddenly, where does it go?
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banks aren’t required to have all the cash invested in them available (that’s what “fractional reserve” means, a fraction), they invest the rest and pay a portion of the returns as interest to their clients. svb lost a bunch of money on its investments after the interest rate hikes and inflation of the last year or two, which caused their stock to drop, and then everybody got scared and went to withdraw their money, more money than the bank actually had.
like a lot of things, the signs that things are going wrong can be there for a long time if you know where to look, but the collapse itself happens suddenly.
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