In a bold move to prevent the spread of financial contagion and a potentially catastrophic domino effect, U.S. federal regulators have taken decisive action. On Sunday, with the full approval of the U.S. president, they announced that all depositors of Silicon Valley Bank (SVB) will have their deposits fully protected. This unprecedented move comes amidst growing concerns about the stability of the financial sector and the potential for a widespread financial crisis. With this announcement, regulators hope to quell fears and provide much-needed reassurance to depositors across the country.
Despite being considered world-class in the tech industry and ranking as the 16th largest asset company in the US, Silicon Valley Bank's troubles have spread to other institutions in its ecosystem, including PacWest Bancorp and First Republic Bank.
The collapse of the bank that symbolizes American start-ups and tech financiers raises fears of a liquidity crisis, comparable to the one in 2008. This is why the asset management has been placed under the control of the Federal Deposit Insurance Corporation (FDIC) to protect the US tech economy by limiting withdrawals to USD 250,000: Peter Thiel's Founders Fund advised its entrepreneurs to withdraw their funds from Silicon Valley Bank or keep their accounts under $250,000 to ensure full FDIC insurance coverage, amid growing concerns about the bank's stability.
Silicon Valley Bank (SVB) was thriving. Credit losses were low. Between 2019 and 2021, Silicon Valley Bank saw a staggering threefold increase in its deposits. While SVB had been investing in conservative, low-risk investments, it was the combination of inflation and rising interest rates by the Fed that caused SVB's assets to lose value. The panic among savers and investors to withdraw their funds all at once only worsened the situation. It's ironic that the very hyperconnected world of Silicon Valley, with its ubiquitous internet, banking apps, instant messaging services like WhatsApp, and social media platforms like Twitter, ultimately contributed to the rapid downfall of Silicon Valley Bank