Silicon Valley Bank: What Happens After the Bank Collapse?
The Second Largest Bank Failure in American History
3 Days ago, the SVB collapsed, losing nearly $20 billion. So what happens next?
Last Friday, Mar. 10th, 2023, we witnessed the second-largest bank failure in American history. In California, this Silicon Valley Bank was hit hard because of increasing interest rates, which was one reason. The bank watched many of its customers get scared and try to withdraw their money, causing a run on the bank, so the federal government, through the FDIC, stepped in and closed the bank.
Here’s the problem: typically, your deposits in a bank are only protected up to $250,000, but the vast majority of customers at this bank had deposited more than that, as this bank specialized in start-ups and small businesses. The uncertainty about what would happen to customers with more than $250,000 deposits started spreading to other banks. A New York bank also failed Sunday night, and others have begun flashing red, raising reason for worry.
Next, people started transferring their money into bigger banks, and we were in the early stages of a domino effect. In an attempt to stop the domino effect, Joe Biden made the statement live that the people will be protected, along with the depositors, who are mainly businesses that otherwise would have to close and lay off thousands of people.
A huge political debate will likely ensue about bank regulation and how much risk we’re willing to let them take going forward. He stated that “no losses will be absorbed by the taxpayers,” and the U.S. is not protecting the management or the people who own stock in the bank right now. Biden went on to say that his one purpose of make sure this crisis ends now, in hopes that it was caught early enough so that taxpayers won’t have to pay and pass the bill on to the banks.
