March 10, 2023– The Silicon Valley Bank (SVB) was shut down by federal regulators. The collapse is the worst in US history since the Great Recession in 2008.
When a bank collapses, they are unable to meet the demands of depositors and other clients. In this case, the federal government has the power to close the establishment. A common cause for this happening is when a banks assets falls below the market value of the banks liabilities.
The collapse of the Silicon Valley bank is making headlines for multiple reasons. Many fear that the United States is in, or will face another recession. Banks experience failure every so often; however, SVB collapsing is on scale the largest of any bank since Washington Mutual.
A majority of the customers at SVB work in the tech industry– many startups invest their money in the bank. With the recent boom of tech companies, constant layoffs and loss, many companies find themselves in financial trouble. To try and save themselves, many began to withdraw their investments and funds. In attempt to make up for the shortage, SVB tried to sell part of their investments, but all came to a loss of $1.8 billion.
The shortage of staff has been a steady decline, however. So how is it possible for the bank to lose so much money in a day and night? Many began to wonder why federal regulators hadn’t paid more attention to the banks slow debilitation.
Although mighty, SVB was not along one of the largest banks in America. It’s failure caused panic and major issues in Americas bank system. With many startups relying on the establishment to invest funds in, many are without access. Following this, many companies and entrepreneurs are set back and, without funding, are behind on pursuing their innovation and products.
At the intensity of the crash, President Joe Biden came out and reassured the public that he intends to “strengthen oversight and regulation of larger banks so that we are not in this position again.” According to the White House fact sheet, Biden intends to carry out this promise by focusing on mid-sized banks; imposing frequent stress tests, as well as liquidity tests and requirements.
What does this mean? The collapse has potentially ruined a lot of businesses and caused a lot of set backs, more layoffs, and has left a sense of dread and uncertainty hanging in the air. Despite the efforts of the Dodd-Frank laws that were put in place in attempt to save banks from this fate, is to no avail. The U.S. financial system is left in shambles as its leaders are unaware of what step to take next to try and slow down the looming threat of a recession.
Amidst panic, it’s difficult to think straight, more so during a time where everything is high risk. Protecting your money should be your main concern if it’s in jeopardy. Experts say that as long as your current back is under FDIC, there is no need to panic. However worrisome, a bank collapse is not something that happens everyday; so for the most part, majority banks are in the clear. Which means more than not, your money is safe where it is. If not, now is the time to make the effort to protect your money.