Silicon Valley Bank collapse leads to economic fallout

Carson Bonner, Campus Carrier news editor

            The Silicon Valley Bank (SVB) collapsed on March 10 after several months of high risk investments and low interest rates forced the bank to sell their government bonds at a loss. This prompted the turn of events that caused the second-largest bank failure in US history. While depositors’ money will be preserved by the federal bank, there will be a precedent set based on government response and the actions taken by banks in  similar positions. 

            The SVB was known for its clientele in the tech and entertainment industry, such as Buzzfeed, Roku, Astra Space and Sunrun. For the most part, SVB primarily had a corporate clientele with larger investments. While this was beneficial before the crash, it has proven to have a negative effect on depositors.

“The sort of clients SVB weren’t like you and me,” economics professor Frank Stephenson said. “These groups had hundreds of thousands of dollars sitting in their accounts, not just the few hundred or couple thousand that most people have. When the SVB was operational, the companies had their money invested by the bank, really just building their funds with the high interest rates. But unfortunately, all that money isn’t going to be preserved.”

Usually the Federal Deposit Insurance Corporation (FDIC) only backs up a maximum of $250 thousand per client, putting companies like Roku, which had $500 million invested in SVB, at risk of financial failure. However, as of March 13, the FDIC has agreed to pay the entire loss for each client and has said that this money will not be at the expense of taxpayers.

“This really doesn’t set the best precedent,” law and economics professor Brian Meehan said. “Other banks now feel secure in the fact that if they make risky investments that cause a crash, their failure can be cleaned up by the government. This is good for clients, but bad for the national economy as a whole. It’s this idea that if you feel secure enough to make risky choices like the SVB, you’re going to choose to make risky choices.” 

Signature Bank in New York has crashed as well, in a similar manner to SVB after high interest rates, uninsured deposits and its involvement in crypto lending caused it to fail. Fortunately for Signature Bank clients, the deposits that were insured will be backed by the FDIC. 

“Patterns like this will likely continue,” Meehan said. “Since the FDIC is backing these banks completely, clients of other at-risk banks will be expecting the same treatment and if they don’t receive it in the case of a collapse, things could get messy in the legal world.”

Within the stock market, there has been some fallout as a result of the collapse, with several bank shares falling more than 10% in a day. Regional banks are primarily the ones struggling within the market, and they have cut back on loans in case the market continues to fall.

“Part of my portfolio was the Charles Schwab corporation, which was linked to SVB,” freshman and accounting major Ellie Pirkle said. “When Silicon Valley collapsed, my share value plummeted so much that I sold all my shares. The general panic that resulted from the collapse makes me nervous,  but I feel that as long as everyone keeps calm, we can recover. Besides selling stock, I will not change any financial planning as a result of the collapse.”

Some have expressed concern in the stability of local banks used by Berry like Truist. Since the collapse of SVB, Truist shares within the market have dropped by 19%, raising concerns about its ability to recover in the market.  Fortunately, Truist deposits are backed by the FDIC by up to $250 thousand per account, so even in the event of a collapse, almost all depositors will be able to have their funds reserved. Analysts from Citigroup, an investment banking company, believe that the bank will be able to push back up to a more regular share value as regional banks recover from the collapse. 

“It’s pretty unlikely banks like that will be hit any more hard than they are now,” Stephenson said. “The concerns lie more with if banks and corporations directly connected to SVB will be able to recover from the collapse.” 

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