Silicon Valley Bank Collapse: What is going on with Silicon Valley Bank?

Silicon Valley Bank has been placed under government control due to its collapse, leading to fears of financial contagion among smaller lenders. The California Department of Financial Protection and Innovation closed the bank and appointed the Federal Deposit Insurance Corporation as depositary.

Regulators acted to protect depositors’ funds and jointly announced efforts to strengthen confidence in the banking system. The FDIC took control of Silicon Valley Bank after a wave of mass withdrawals by its customers left the bank in collapse. While the government aims to avoid financial contagion, Treasury Secretary Janet Yellen has ruled out a bailout of the bank.

Silicon Valley Bank Collapse

Silicon Valley Bank, a key lender among U.S. startups, collapsed on Friday, March 10, 2023, due to “insolvency,” marking a significant downturn in the technology sector. The California Department of Financial Protection and Innovation (DFPI) closed SVB and appointed the Federal Deposit Insurance Corporation (FDIC) as depositary for the bank’s funds.

This move was aimed at protecting depositors’ funds, thereby avoiding fears that households and businesses would flee smaller lenders. However, the bank’s collapse has raised concerns about spillover effects, prompting the Treasury Department, the Federal Reserve, and the FDIC to launch a joint effort aimed at strengthening confidence in the banking system on Sunday, March 12.

The collapse of Silicon Valley Bank has sent shockwaves across the industry, with several medium-sized or regional institutions withdrawing from the stock market on the same day. For instance, First Republic of California fell by almost 30%, and Signature Bank has lost a third of its value since the night of Wednesday, March 8.

These institutions have in their client portfolios a large proportion of companies whose deposits often exceed the maximum amount insured by the FDIC, about $250,000 per client, whiCch could push them to withdraw their funds.

What is going on with Silicon Valley Bank?

The FDIC, a branch of the government, took control of SVB on Friday, March 10, on the verge of implosion under the effect of massive withdrawals by its customers. Practically 96% of deposits at that bank are not covered by the FDIC’s refund guarantee, leaving a large portion of its customers at risk of losing their money. Despite the severity of the situation, the government has ruled out a bailout of the bank.

The collapse of Silicon Valley Bank is not only a financial crisis but also a matter of national concern. U.S. President Joe Biden pledged to “hold accountable” those responsible for bank failures and added that he would address the nation on Monday morning, March 13, to deliver a reassuring message about the banking system. Federal banking law, however, would allow the FDIC to protect uninsured deposits if failure to do so could jeopardize the system.

In conclusion, the collapse of Silicon Valley Bank has sent shockwaves across the financial industry, with the government and financial regulators taking immediate action to protect depositors’ funds and prevent spillover effects. The situation remains a matter of national concern, with the government pledging to hold accountable those responsible for bank failures.