The second-largest bank collapse in U.S. history has happened as Silicon Valley Bank was shut down and taken over by the Federal Government. Businesses are now struggling to find the money to make payroll. Individual depositors showed up at branches to retrieve their money only to be met with threats of police action due to trespassing. The FDIC takeover of SVB may help give depositors some relief. However, around 90% of SVB deposits were not insured by the FDIC, as they only cover accounts up to $250,000.
All of this mess started as a result of SVB making certain financial moves a short while ago while interest rates were next to zero. When rates climbed up to their current levels, the debt accrued by the bank suddenly became unaffordable. The bank attempted to make other moves such as getting large businesses to make even larger deposits to cover losses, but nothing ever materialized. SVB was then forced to publicly announce that they were over two billion dollars short of what they needed to stay afloat. This, of course, caused massive panic from depositors. SVB then suffered a bank run to the tune of $46 billion. The bank run depleted all of their cash and placed them in the hole by about one billion.
Any hopes of SVB gaining the $2 billion to become solvent were dashed after the bank run. The Federal Government was then forced to take the company over and rename it. FDIC-insured accounts may be protected, but, again, the overwhelming majority of SVB deposits are not insured. The ultimate result here is that the U.S. Government will be called upon to bail SVB out, the same thing that happened during the 2008 financial crisis with a plethora of other companies.
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