Silicon Valley Bank, headquartered in Santa Clara, California, collapsed this past Friday, March 10th and this is what we know:
Details about Silicon Valley Bank
SV bank, founded in 1983, is a state-chartered bank that caters to many of the world’s biggest tech investors. It was the 16th largest bank in the United States, and now having collapsed, it created the second-largest bank failure in the history of the U.S.
Why did SVB Fail?
When rates were extremely low, Silicon Valley Bank invested their funds in long-term bonds, which seemed like a good idea at the time, but has now backfired on them. On Wednesday, the bank announced that they had endured a $1.8 billion after tax-loss. 48 hours later, they had lost over $260 billion in value.
How are Customers Being Affected?
Banks only carry a portion of depositors’ money in cash, which is called a fractional reserve. Because of this, The Silicon Valley Bank couldn’t give their depositors their money. Since they were short on cash, the bank was forced to see its bonds at big losses. Their deposits were being held in long-term bond investments, and because of this collapse, they were no longer worth as much. Customers from the tech industry panicked and quickly pulled their money out of SVB resulting in a bank run, which is when clients withdraw money from their accounts because they have reason to believe that the bank is heading into turmoil.
How are They Fixing This Problem?
The Federal Deposit Insurance Corporation (FDIC) has stepped in to try to regulate customer deposits. The federal government is helping to stop the domino effect from causing more banks to fail by telling people their money is backed up by the FDIC. They say the collapse of SVB will not cause a recession, but Americans are now even more on edge about how their money is being handled.
