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Banks Depend On Trust Backed By Regulation
- Banks operate on trust where depositors expect to get money back on demand.
- Silicon Valley Bank held deposits and invested excess (e.g., bonds), relying on that trust and regulatory oversight to validate solvency.
How Banks Use Deposits To Build Portfolios
- Banks invest deposited funds rather than holding all cash, keeping a percentage on hand (example used: 10%).
- The remaining funds become loans or investments, forming a portfolio of short and long-term assets banks manage for liquidity and return.
Spread Critical Assets To Reduce Single Vendor Risk
- Consider spreading critical assets across multiple providers to mitigate single-vendor risk.
- The host compares using one bank or one cloud provider versus multiple options as a risk-management decision.