How Silicon Valley Bank caused panic and fear within banking industry

It seems like everyone and their mother are talking about Banks nowadays.

The whole situation has caused panic and fear within the banking industry:

Silicon Valley Bank SVB was the 16th largest bank in the US that suffered a bank run it couldn't keep up with.

It's when tons of customers try to withdraw money from a bank.

SVB isn't your regular bank.

For the past 3 years, companies like the ones above didn't need loans to finance business activities.

SVB needed to find a way to make money despite low interest rates and companies not seeking financing.

They purchased over $100 billion in government bonds and locked them away at sub- 2 interest rates for 3 years.

In the years prior to 2022 this strategy worked but when the fed started raising interest rates something happened. The bonds SVB invested in started to become worthless.

Since SVB bought these bonds before the interest rate hikes, their bond prices fell, causing them to lose value.

Companies that banked with SVB started withdrawing money to cover short-term obligations. Amidst layoffs and slower growth, they needed to keep the lights on. SVB sold bonds to fund these withdrawals, leading to a $1.7 billion loss.

On March 8, SVB sold more than 30% of their shares to raise capital to cover their losses.

Not only did SVB fail to raise enough capital, but their actions spooked customers.

SVB would become insolvent as a result of this.

The federal government seized SVB and said they would insure deposits.

The federal government only insures up to $250,000 for each depositor. More than 97% of accounts at SVB have more than $250,000, but on March 12, the federal government announced that all depositors would be made whole.

There is a heated debate about whether this is a bailout or not, and if it should have been done in the first place reply to this email with what you think!

Unless you have over $250,000 in your bank account, not much.

Your deposits can be insured up to $250,000 if your bank goes belly up.

If you have more than $250,000 in your bank account and are afraid of it not being insured by the federal government, you might want to consider holding multiple bank accounts.

This is especially true if you fear your money is at risk.