It was all over the news, the Silicon Valley Bank (SVB) suffered a major collapse resulting in one of the largest bank failures in the history of the United States. That statement alone is enough to get anyone to rush over to the nearest ATM and pull out everything they have, but is the situation really as bad as it seems? The caring advisors at Maggi Tax are here to help you make sense of everything and teach you what the Silicon Valley Bank collapse could mean for the economy.
What Is SVB And Why Did It Collapse?
The SVB has been serving for roughly 30 years with little sign of slowing down. It had 17 branches with over 9 thousand business accounts including start-up ventures. By December 2022, not too long before the time of its collapse on March 10 of 2023, the bank had over $200 billion in assets. But if it was holding so much money under its roof, what caused it to go under? Some would say that it was a terrible combination of paranoia and wrong decisions.
Beginning During the Pandemic
The scare of the 2020 pandemic caused a large spike in deposits at SVB. The potential consequences may not have seemed so obvious back then, but banks were struggling to keep up with matching the amount that they could give back to their borrowers. The following year, the rate of deposits increased even more. Eventually, SVB made a decision regarding the money that they were unable to lend out.
Their Investment In Securities
The SVB decided to put money into U.S. Treasury securities that were designed to be a safe investment. However, interest rates shot up consistently during the past couple of years to the point where those “safe” investments plummeted in value. The bank saw a loss of $1.8 billion dollars, and as you can imagine, more of their clients started pulling from their accounts out of fear. The rest is history.
How The FDIC Took Care OF It
Thankfully, not all hope is lost for those who had accounts with SVB. The Federal Deposit Insurance Corporation (FDIC) took over the bank in just a matter of days and renamed the franchise the Deposit Insurance National Bank of Santa Clara. With this new ownership, assets are more or less safe, but that depends on what your personal account looks like. Any account with assets under $250,000 is completely insured. However, over 9,000 of SVB’s clientele involved businesses both large and start-up-sized. Many of these businesses held accounts over that limit, and so they’ll be given a “Receiver’s Certificate” by the FDIC to be used as a sort of token for getting a portion of their uninsured money back at a later time.
Should I Be Worried For The Future?
This whole occurrence may have dominated headlines for a good couple of days, but in reality, the SVB only accounted for less than one percent of all banking assets in the United States. Their failure is unlikely to spread to other banks and isn’t showing any signs of greatly affecting the country’s overall economy. Since the previous major collapse in 2008, most banks have accounted for such losses to happen again. SVB was just an odd case.
Need Help With Your Investments? Call Maggi Tax!
You could say that this whole ordeal was partly due to an investment gone wrong. If you don’t want the same thing happening to you, call Maggi Tax today at (727) 799-1701 to ask about our investment planning services! We will give you advice based on your personal needs while accounting for potential risks so you can invest safely.
