The collapse of Silicon Valley Bank, explained simply

From NOTICE News Daily for March 14, 2023

On Friday, Silicon Valley Bank collapsed when its customers, mainly businesses and startups, tried to withdraw their money in a bank run. The Federal government stepped in to guarantee customers’ money and protect the banking system from further crisis. It’s the largest bank collapse since the 2008 financial crisis and the second-largest bank failure in US history.



Jonathan: Midday on Friday, Silicon Valley Bank, or S-V-B as it’s known, was taken over by the federal government, in part to protect the banking system and money people deposited at S-V-B.

It’s the largest bank collapse since the 2008 financial crisis, and the second largest bank failure in U.S. history.

The bank collapsed when many of its customers — mainly startups and other businesses — all tried to pull their money out of the bank at once.

This is called a bank run. Banks don’t keep all of everyone’s money on hand – they take it and make other investments.

Silicon Valley Bank invested in U.S. Treasury bonds, which are sort of like loans issued by the public to the government.

With bonds, the government promises to pay your money back, plus interest.

But the government has been raising interest rates in order to fight rising inflation – and rising interest rates have caused bonds to drop in value.

Higher interest rates also mean that businesses have been taking out fewer loans, instead pulling money out of their bank accounts to pay for basic expenses – like paying employees.

When S-V-B was caught with not enough money to cover customers’ withdrawals, it had to sell some of those bonds – at a loss – to give customers their money back.

When word spread that S-V-B might not have enough money to cover all withdrawals, everybody rushed to the bank hoping to get their money—

Because when a bank closes, you want to be first in line, not last.

That’s when the federal government stepped in. They’ve now guaranteed that customers of S-V-B will get all their money back.

The hope is to protect companies who saved their money at the bank – and keep the crisis from spreading to other banks.