Apparently, 3 US banks have gone under within a weeks time. The banks are Silvergate Capital, Silicon Valley Bank (SVB), and Signature. What caught my eye on this story is the SVB closure which was caused in large part by mass amounts of withdrawals. I thought banks were supposed to be able to cover all withdrawal requests?
The cause for SVB's collapse is that many made a run on the bank... withdrew their money all at once:
[emphasis added]
And if I hear about all of the big boys withdrawing their funds in large numbers, you can bet that the little guy (like me) should be concerned. Apparently, the Feds have stepped in:
What I'm wondering now is if more banks will fail?
Also, should I be worried about being able to access my own hard-earned money from my bank?
Source: CNBCSilvergate Capital, a central lender to the crypto industry, said on Wednesday that it would be winding down operations and liquidating its bank. Silicon Valley Bank, a major lender to startups, collapsed on Friday after depositors withdrew more than $42 billion following the bank’s Wednesday statement that it needed to raise $2.25 billion to shore up its balance sheet. Signature, which also had a strong crypto focus but was much larger than Silvergate, was seized on Sunday evening by banking regulators.
The cause for SVB's collapse is that many made a run on the bank... withdrew their money all at once:
Source: The New York TimesThe failure of Silicon Valley Bank was caused by a run on the bank. The company was not, at least until clients started rushing for the exits, insolvent or even close to insolvent. But banking is an enterprise that relies as much on confidence as on cash — and if that runs out, the game is over.
The collapse may have been an unforced, self-inflicted error: The bank’s management chose to sell $21 billion of bonds at a $1.8 billion loss, in large part, it appears, because many of those bonds were yielding an average of only 1.79 percent at a time when interest rates had risen drastically and the bank was starting to look like an underperformer relative to its peers. Moody’s was considering downgrading its rating. The bank’s management — with the help of Goldman Sachs, its adviser — chose to raise new equity from the venture capital firm General Atlantic and also to sell a convertible bond to the public.
It isn’t clear if the bond sale or the fund-raising, at least initially, had been made under duress. It was meant to reassure investors. But it had the opposite effect: It so surprised the market that it led the bank’s very smart client base of venture capitalists to direct their portfolio clients to withdraw their deposits en masse.
[emphasis added]
And if I hear about all of the big boys withdrawing their funds in large numbers, you can bet that the little guy (like me) should be concerned. Apparently, the Feds have stepped in:
Source: CNNNew York CNN — In an extraordinary action to restore confidence in America’s banking system, the Biden administration on Sunday guaranteed that customers of the failed Silicon Valley Bank will have access to all their money starting Monday.
In a related action, the government shut down Signature Bank, a regional bank that was teetering on the brink of collapse in recent days. Signature’s customers will receive a similar deal, ensuring that even uninsured deposits will be returned to them Monday.
“The Fed ring fenced the SVB disaster and averted a crisis of epic proportions for the banking sector,” said Wedbush Securities’ Dan Ives.”This was a much needed move to avert contagion on the banking sector and consumer confidence. That said the Street knows there is never just one cockroach and investors will be laser focused on other regional banks that need to possibly shore up capital.”
By guaranteeing the deposits, the US government is trying to avoid two potentially risky scenarios from the bank failure fallout, both of which could have dire consequences: Other banks with similar profiles to SVB and Signature could be next to fail if customers lose faith that they will have ample cash to fund their deposits. And the tech companies that kept their cash with SVB could collapse if they were unable to make payroll or fund their operations with the $250,000 worth of deposits per account that the FDIC insures.
What I'm wondering now is if more banks will fail?
Also, should I be worried about being able to access my own hard-earned money from my bank?
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