SVB ( Silicon Valley Bank)
was unique as it lent based on securities that were not public. It was a key lender in the market and was trying to raise $2.25bn (£1.9bn) to compensate the loss from the sales of assets (mainly treasury bonds) affected by the higher interest rates. This move made the customers panic which ultimately led to a spike in the withdrawals. SVB witnessed a surge in deposits which was mostly the stimulus money provided by the government during the pandemic. The bank had invested most of the money in high yielding assets of that time. This made the bank unable to meet the spike in withdrawals as there was liquidity constraints.
So, what next?
Henceforth, the US regulators stepped in and devised a plan giving customers full access to their deposit. The Federal Deposit Insurance Corporation (FDIC) protects deposits up to $250,000 and had taken charge of around $175bn (£145bn) in deposits held at the bank. This is a large bank failure since the 2008 crash and the whole withdrawal activity was based purely on panic sentiment in the market and getting protective towards their money or investments. Hopefully this will resolve soon.
*FYI – The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation that offers deposit insurance to depositors in American commercial banks and savings banks. The FDIC was formed by the Banking Act of 1993 to restore trust in the American banking system during the Great Depression.
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