However, despite selling 250 million units of its two most popular block-shaped models in the mid-2000s, the Finnish company ended up being woefully late to the smartphone party. Not only was the company ill-equipped to match the iPhone and Blackberry in terms of technology and design features, but Nokia also failed to foresee how exponential advances in mobile connectivity would change how people ultimately used their devices. As true broadband connectivity shaped the mobile experience, the phone was no longer just a phone – it was transformed into a seamless hub for any and all digital activity.
The 5G Experience
In the coming years, the newest generation of mobile connectivity – 5G – will roll out and change what is possible again. With maximum speeds up to 1,000x faster than 4G, this new technology will again shift consumer behavior, as well as how we view smartphones, communications, IoT, gaming, and AR/VR. Today’s infographic comes to us from Cradlepoint, and it highlights how the switch to 5G is unfolding, and what it could mean to you.
The switch to 5G is already well underway, with countries like China and the United States spending billions of dollars since 2015 to get infrastructure in place. And by 2035, it’s estimated that 5G will enable $12.3 trillion of global economic output, according to a recent report from IHS Markit.
What 5G Will Mean
Here are some of the key differentiators that 5G will provide to future wireless connectivity: 10x decrease in latency Latency will be as low as 1ms. 10x increase in connection density This will enable more efficient signaling for IoT connectivity. 3x spectrum efficiency More bits per Hz will be achieved with advanced antenna techniques. 100x traffic capacity This will drive network hyper-densification with more small cells everywhere. 10x experienced throughput Multi-Gbps peak rates will be achieved with uniformity. 100x network efficiency Network energy consumption will be optimized through more efficient processing. The switch to 5G will mean longer battery life for devices, lower costs, enhanced cellular footprints, higher throughput, enhanced capacity, low latency, and virtually no packets dropped. More importantly, as a result of these changes, how mobile connectivity looks in 10 years may be as unrecognizable as the Nokia block phone era does to us today.
on But fast forward to the end of last week, and SVB was shuttered by regulators after a panic-induced bank run. So, how exactly did this happen? We dig in below.
Road to a Bank Run
SVB and its customers generally thrived during the low interest rate era, but as rates rose, SVB found itself more exposed to risk than a typical bank. Even so, at the end of 2022, the bank’s balance sheet showed no cause for alarm.
As well, the bank was viewed positively in a number of places. Most Wall Street analyst ratings were overwhelmingly positive on the bank’s stock, and Forbes had just added the bank to its Financial All-Stars list. Outward signs of trouble emerged on Wednesday, March 8th, when SVB surprised investors with news that the bank needed to raise more than $2 billion to shore up its balance sheet. The reaction from prominent venture capitalists was not positive, with Coatue Management, Union Square Ventures, and Peter Thiel’s Founders Fund moving to limit exposure to the 40-year-old bank. The influence of these firms is believed to have added fuel to the fire, and a bank run ensued. Also influencing decision making was the fact that SVB had the highest percentage of uninsured domestic deposits of all big banks. These totaled nearly $152 billion, or about 97% of all deposits. By the end of the day, customers had tried to withdraw $42 billion in deposits.
What Triggered the SVB Collapse?
While the collapse of SVB took place over the course of 44 hours, its roots trace back to the early pandemic years. In 2021, U.S. venture capital-backed companies raised a record $330 billion—double the amount seen in 2020. At the time, interest rates were at rock-bottom levels to help buoy the economy. Matt Levine sums up the situation well: “When interest rates are low everywhere, a dollar in 20 years is about as good as a dollar today, so a startup whose business model is “we will lose money for a decade building artificial intelligence, and then rake in lots of money in the far future” sounds pretty good. When interest rates are higher, a dollar today is better than a dollar tomorrow, so investors want cash flows. When interest rates were low for a long time, and suddenly become high, all the money that was rushing to your customers is suddenly cut off.” Source: Pitchbook Why is this important? During this time, SVB received billions of dollars from these venture-backed clients. In one year alone, their deposits increased 100%. They took these funds and invested them in longer-term bonds. As a result, this created a dangerous trap as the company expected rates would remain low. During this time, SVB invested in bonds at the top of the market. As interest rates rose higher and bond prices declined, SVB started taking major losses on their long-term bond holdings.
Losses Fueling a Liquidity Crunch
When SVB reported its fourth quarter results in early 2023, Moody’s Investor Service, a credit rating agency took notice. In early March, it said that SVB was at high risk for a downgrade due to its significant unrealized losses. In response, SVB looked to sell $2 billion of its investments at a loss to help boost liquidity for its struggling balance sheet. Soon, more hedge funds and venture investors realized SVB could be on thin ice. Depositors withdrew funds in droves, spurring a liquidity squeeze and prompting California regulators and the FDIC to step in and shut down the bank.
What Happens Now?
While much of SVB’s activity was focused on the tech sector, the bank’s shocking collapse has rattled a financial sector that is already on edge.
The four biggest U.S. banks lost a combined $52 billion the day before the SVB collapse. On Friday, other banking stocks saw double-digit drops, including Signature Bank (-23%), First Republic (-15%), and Silvergate Capital (-11%).
Source: Morningstar Direct. *Represents March 9 data, trading halted on March 10.
When the dust settles, it’s hard to predict the ripple effects that will emerge from this dramatic event. For investors, the Secretary of the Treasury Janet Yellen announced confidence in the banking system remaining resilient, noting that regulators have the proper tools in response to the issue.
But others have seen trouble brewing as far back as 2020 (or earlier) when commercial banking assets were skyrocketing and banks were buying bonds when rates were low.
