On Sunday night, the U.S. government was scrambling to prepare emergency measures, to shore up banks and the U.S. economy. as the nation braces for a potential bank run today. This is directly related to last weeks’ failure of Silicon Valley Bank (SVB).
Reportedly, On Thursday, as a result of the bank’s stock price dropping, after it announced a capital raising ,on Wednesday night, startup founders started taking money out of SVB. Essentially, the collapse of Silicon Valley Bank was caused, by a massive run on the bank, with customers initiating withdrawals of $42 billion this week - leaving the bank with a negative cash balance of $958 million.
This run on the bank, caused it to be placed into Federal Deposit Insurance Corp. receivership on Friday, after the California Department of Financial Protection and Innovation (DFPI) determined the bank had been rendered insolvent. Prior to the event, the bank was reported to be in “sound financial condition,” according to the DFPI.
According to those familiar with the matter, the U.S. Treasury and the Federal Reserve are jointly preparing to launch a program to backstop deposits, in excess of the Federal Deposit Insurance Corp. of $250,000. Also, the Federal Reserve is also preparing to ease the terms of banks’ access to its discount window, an emergency lending facility for banks to raise cash.
Not yet official, these emergency preparations are in process. Additionally, the Fed and the U.S. Treasury, have not publicly commented on measures they are considering to stave off a rush of demand for bank account deposits to be withdrawn. As yet, commentators disagree as to whether a run is eminent with other institutions. Some consider it a “one off” event at SVB, while still others are carefully considering just where to place their venture capital.
Trapped in the speculation of it all is Wall Street, which appears to be more than cautious, over what it sees as a slippery slope for the banking industry, if bank runs take off. Silicon Valley Bank, was the largest bank failure since the 2008 financial crisis and the second largest in U.S. history. This event is sure to keep the market on its toes, for quite some time.
“It’s good to have money and the things that money can buy, but it’s good, too, to check up once in a while and make sure that you haven’t lost the things that money can’t buy.”
-George Lorimer
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“It is incumbent upon each of us to improve spending and savings practices to ensure our own individual financial security and preserve the collective economic well-being of our great society.”
-Ron Lewis