Silicon Valley Bank Collapse: Treasury Secretary Assures Safety of Banking System
By The collapse of Silicon Valley Bank (SVB) on Friday has become the second largest bank failure in American history and the first since the 2008 financial crisis.[0] The bank, which served many tech startups, was taken over by federal regulators after a sudden bank run triggered by Federal Reserve’s interest rate hikes. This caused depositors to withdraw funds and the value of the bank’s assets to decline.[1]
The US government has responded to the collapse by guaranteeing deposits at the failed bank. Treasury Secretary Janet Yellen reassured the public that “the American banking system is really safe and well-capitalized.”[2] She said this is due to the reforms that were implemented after the 2008 financial crisis, which have made the banking system “resilient.”
SVB, a subsidiary of SVB Financial Group, was taken over by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation (FDIC) was appointed as a receiver to the bank.[3] The FDIC’s deposit insurance fund will be used to cover depositors, many of whom were uninsured due to the $250,000 cap on guaranteed deposits. All insured depositors will have full access to their insured deposits no later than Monday.[4]
The roots of SVB’s collapse stem from dislocations spurred by higher rates.[5] Higher interest rates eroded the value of long-term bonds that SVB and other banks had bought during the era of ultra-low, near-zero interest rates.[6] The bank had invested in bonds at the top of the market and when interest rates rose, prices of the bonds fell.[6]
The FDIC will guarantee deposits of up to $250,000, but that money may not be sufficient for some companies. Not only does this concern companies that put money into SVB, but it is also applicable to those who use other services offered by SVB, such as revolving loans and credit cards.[7]
In response to the collapse, the US government has made available funding to other banks to help assure that they can meet the needs of all their depositors.[8] The agencies said Silicon Valley Bank’s depositors would have access to all their money on Monday and that no taxpayer money will be used.[9]
The SVB failure is the nation's largest collapse of a financial institution since Washington Mutual went under in 2008.[3]
0. “Silicon Valley Bank Used Former McCarthy Staffers to Weaken Regulations, Lobby FDIC” The Intercept, 12 Mar. 2023, https://theintercept.com/2023/03/11/silicon-valley-bank-used-former-mccarthy-staffers-to-weaken-regulations-lobby-fdic/
1. “FDIC Will Protect All Silicon Valley Bank Deposits After Sudden Collapse, Treasury Says” Forbes, 12 Mar. 2023, https://www.forbes.com/sites/marisadellatto/2023/03/12/fdic-will-protect-all-silicon-valley-bank-deposits-after-sudden-collapse-treasury-says/
2. “Yellen rules out bailout for Silicon Valley Bank: “We're not going to do that again”” CBS News, 12 Mar. 2023, https://www.cbsnews.com/news/janet-yellen-silicon-valley-bank-bailout-face-the-nation-interview-today-2023-03-12/
3. “My Trade Amid SVB's Fall? An ‘Insurance Policy' on BofA I Hope Doesn't Pay Off” RealMoney, 12 Mar. 2023, https://realmoney.thestreet.com/investing/stocks/my-bank-trade-an-insurance-policy-on-bofa-i-hope-doesn-t-pay-off-16118056
4. “PR-16-2023 3/10/2023” FDIC, 10 Mar. 2023, https://www.fdic.gov/news/press-releases/2023/pr23016.html
5. “Here's how the second-biggest bank collapse in U.S. history happened in just 48 hours” CNBC, 10 Mar. 2023, https://www.cnbc.com/2023/03/10/silicon-valley-bank-collapse-how-it-happened.html
6. “Timeline: The Shocking Collapse of Silicon Valley Bank” Visual Capitalist, 13 Mar. 2023, https://www.visualcapitalist.com/timeline-shocking-collapse-of-silicon-valley-bank/
7. “What is Silicon Valley Bank? The bank’s collapse, explained.” Vox.com, 10 Mar. 2023, https://www.vox.com/technology/23634433/silicon-valley-bank-collapse-silvergate-first-republic-fdic
8. “Treasury, regulators unveil bank rescue plan to stem crisis” POLITICO, 13 Mar. 2023, https://www.politico.com/news/2023/03/12/fdic-holds-auction-for-svb-amid-growing-uncertainty-00086696
9. “Schiff says there’s ‘profound concern in California’ over Silicon Valley Bank collapse” The Hill, 13 Mar. 2023, https://thehill.com/homenews/house/3896834-schiff-says-theres-profound-concern-in-california-over-silicon-valley-bank-collapse
