The Silicon Valley Bank Collapse

Photo by Mariia Shalabaieva on Unsplash

Over the past couple of weeks, you may have seen headlines from several news channels and newspapers, all of which have had a similar headline to this: “The Silicon Valley Bank Collapsed.” Although many people had probably not heard of this bank prior to the collapse, the collapse prompted a lot of fear for the economy. 

The Silicon Valley Bank was founded in 1986 and was meant to help fund businesses, especially tech companies. They were also very willing to lend money to companies that were seen as a risk. Despite this, it became very large and successful, and was sought out by entrepreneurs. Just a couple of days before the collapse, the bank appeared to be in very stable condition. This made the bank’s collapse appear surprising, but it actually makes sense considering what was happening prior. 

The past few months of 2023 have been seeing inflation due to the pandemic, which means that prices were rising. When this happened, the Federal Reserve, which is America’s central banking system, started increasing interest rates. This reduced the value of the Silicon Valley Bank’s bonds. In order to deal with inflation, many people started withdrawing money from their accounts in large numbers. This led the bank to start selling its investments, which led it to lose $1.8 billion. The day after that happened, the bank’s stock crashed, and more people withdrew funds, leading to the bank’s collapse. On March 17th, its parent company filed for bankruptcy. The Silicon Valley Bank was bought by First Citizens Bank on March 26th.

When the bank collapsed, the bank was taken over by federal regulators and announced that deposits would be available by March 13th. When no one was willing to buy the bank, the federal regulators allowed customers to collect all of their funds from the bank. However, getting all your funds from the bank would only be possible if the funds were less than $250,000. For those with deposits higher than that, they will not get all of their money back. This is because the FDIC, which supplies deposit insurance, only insures deposits up to $250,000.

In order to prevent incidents like the Silicon Valley Bank crash, the Bank Term Funding Program (BTFP) was introduced. The BTFP offers loans to banks so that they don’t have to sell any of their investments to meet their customers’ needs. Despite current speculation about a possible recession, the fall of the Silicon Valley Bank is not a sign of things to come. All it did was show some shortcomings in banking systems, which led to measures to minimize said shortcomings.

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