The Silicon Valley Bank and Signature Bank failures have everyone nervous about another bank meltdown. Silicon was seized by regulators on March 10, and Signature Bank was seized on March 12. That is 2 banks that have collapsed in as many days.
What happened
On Wed March 8, it shocked investors when SVB (Silicon Valley Bank) stated that it needed to raise $2.25 billion to help its balance sheet. When news like that comes out, as one would expect, people went running for their money which caused a downward spiral. The bank holds assets that if the interest rates go up the assets are worth less money. Also when the interest rates go up, you find fewer people needing loans, such as startups which this bank was heavy into. Loans are part of what keeps banks going, no loans, no new money to cover when investors pull money out.
But not all of Silicon Valley Bank’s problems are linked to rising interest rates. The bank was unique in ways that contributed to its rapid demise. Because the bank’s business was concentrated in the tech industry, Silicon Valley Bank started to see trouble when start-up funding began to dwindle, leading its clients — a mixture of technology start-ups and their executives — to tap their accounts more. The bank also had a significant number of big, uninsured depositors — the kind of investors who tend to withdraw their money during signs of turbulence. To fulfill its customers’ requests, the bank had to sell some of its investments at a steep discount.
Once Silicon Valley revealed its huge loss on Wednesday, the tech industry panicked, and start-ups rushed to pull out their money, resulting in a bank run.
From New York Times
Signature Bank failure
The Signature Bank’s failure was due in part to being heavily vested in cryptocurrency. When FTX collapsed it did not make things easy for the bank. It was the first FDIC-insured bank to launch a blockchain-based digital payments platform. Signature Bank tried to lay blame on SVB for their troubles. Barney Frank, a former congressman who just so happened to help design new financial regulations after 2008 stated “It was an SVB-generated panic,” he told The Wall Street Journal. “We were fine until the last couple of hours on Friday.” Ratings agency Moody downgraded the debt ratings for the bank to junk.
Bailouts again
Of course, you know what this means. “Government funded” bailouts, which means taxpayer bailouts. Nothing is government funded since it’s all taxpayer money. President Biden tried to reassure people that the banking industry was not going to melt down like in 2008. I really do not have much confidence in anything this man says considering he has made the wrong decision on just about everything.
The FDIC insures deposits up to $250,000. After that you are SOL. The Biden Administration stated no one will lose any money. I will believe that when I see it. The little guy always manages to lose out somehow.
