The problem now comes for Silicon Valley Bank customers who had more than $250,000 in their bank accounts. Here’s what’s going on in this banking collapse.
In the last few days we have seen how the headlines of different national and international newspapers have made about the collapse of the financial institution called Silicon Valley Bank. And that certainly brings a direct affectation to its customers but it will also have repercussions that will go beyond that.
To explain what happened, we have to tell you that the company, whose headquarters are located in California, represents the second largest and most important bankruptcy in the history of banking in the United States, and you may think that it was not a renowned bank, for example Wells Fargo, but even so, the event has become something historic.
Who is most affected
The current concern revolves around the fact that, according to official estimates, this bank’s customers had at least $151.5 billion in uninsured deposits in their bank accounts at the end of 2022. This information was obtained from an annual report made by Silicon Valley Bank (SVB) itself. In addition, the bank had an estimated $13.9 billion worth of foreign deposits, which were also uninsured.
“Depositors will have access to all of their money as of Monday, March 13,” the Treasury Department, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation said in a statement they jointly sent out.
“Any losses associated with the resolution of Silicon Valley Bank will not be borne by the taxpayer,” they added.
The main problem is for people with incomes over $250,000, as those with lower amounts are already insured by the Federal Deposit Insurance Corporation.
And when we talk about affected, we are not only referring to individual customers, there were many companies that had their money with this bank, such as Buzzfeed, Roblox and Roku had millions with the bank.
What were the events that led to its collapse?
Silicon Valley Bank closed last week after its shares fell 66% on March 10. From that moment on, its operations were frozen and an administrator was appointed to manage its assets. The main causes of its closure are lack of liquidity and financial insolvency.
According to a Bloomberg investigation, interest rate increases and financial nervousness also contributed to its collapse. Because many customers were worried about the bank’s future, they decided to withdraw their savings from the bank. This so-called “exodus” of capital caused the bank to sell its U.S. Treasury bonds at a loss, which added to the institution’s financial crisis.
The scare was generated after they announced that they had sold a bunch of securities at a loss and would sell $2.25 billion in new shares to shore up their finances.
Since that time, there has been some nervousness in financial institutions around the world, but mainly in the United States. Within two days of Silicon Valley Bank’s collapse, Signature Bank followed in its footsteps. All these situations have generated turbulence in the markets and there are fears of a possible domino effect.
According to Bloomberg, Silicon Valley Bank is the largest lender to fail in the last 10 years. In 2022, it was valued at $40 billion. It had popularity for funding startups and tech companies.
To provide some reassurance, U.S. President Joe Biden said earlier this week, “you can rest assured that our banking system is safe” and “we will do whatever it takes on top of all of this.”
Silicon Valley Bank was founded in 1983. It provided banking services to nearly half of the U.S. venture-backed technology and life sciences companies, CNN explains in its report.
In addition to having operations in the United States, it also has a presence in Canada, China, Denmark, Germany, Ireland, Israel, the United Kingdom and Sweden.
“Let me be clear that during the financial crisis, there were investors and owners of large systemic banks that were bailed out (…) and the reforms that were implemented mean we’re not going to do that again,” Treasury Secretary Janet Yellen told CBS in an interview on Sunday.
“But we care about depositors and we’re focused on trying to meet their needs.”