Five Facts on the Silicon Valley Bank crisis
For the past week, government officials and banks have been working furiously to contain the fallout of the Silicon Valley Bank crisis, which has some worried about ripple effects that could impact the banking industry and the economy at large. Here are Five Facts about this historic bank failure and its aftermath.
1. Silicon Valley Bank failed after a run on deposits left it short of cash.
The collapse of Silicon Valley Bank was due to a number of factors, including an overinvestment in U.S. Treasury bonds that devalued as interest rates rose, a large number of tech-focused customers whose deposits were over the $250,000 limit insured by the FDIC, and mobile banking technologies that let customers withdraw their money almost instantaneously. These factors set the stage for a textbook run on the bank that Silicon Valley Bank could not manage on its own.
2. The Silicon Valley Bank collapse is the second-largest bank failure in U.S. history.
Measured by the total amount in assets held by the bank, Silicon Valley Bank is the second-largest bank failure in the history of the country, with the bank holding $209 billion in assets, making it the nation’s 16th-largest bank at the time of collapse.
3. Other regional banks have faced trouble in recent days.
Following the collapse of Silicon Valley Bank, New York-based Signature Bank also failed, while a consortium of major banks like JP Morgan Chase have invested $30 billion bailing out the struggling First Republic Bank. Nationwide, there are roughly 10,000 regional banks and credit unions in operation according to POLITICO.
4. Treasury Secretary Janet Yellen assured lawmakers Thursday that the U.S. banking system remains sound.
Secretary Yellen’s comments before the Senate Finance Committee suggest that the Biden administration is confident that their unorthodox plan to allow the Federal Deposit Insurance Corporation to guarantee the deposits of all customers at Silicon Valley Bank and Signature Bank – despite the fact that 94% of deposits in Silicon Valley Bank were not insured by the FDIC – will keep the fallout from spreading further.
5. Some leading financial executives and banking experts warn that more banks could fail.
In his annual letter to shareholders published this week, BlackRock CEO Larry Fink warned that numerous other regional banks could gradually collapse over a period of time, similar to the savings and loan crisis, where 32% of all savings and loan associations in the United States failed between 1986 and 1995. Likewise, former FDIC head William Isaac said he was certain there would be more bank collapses to come: “There’s going to be more. How many more? I don’t know. How big? I don’t know. Seems to me to be a lot like the 1980s.”