The recent collapse of the Silicon Valley Bank has raised concerns about the impact on the broader economy, as it is the 16th largest bank in the United States. The collapse of this bank resulted in a bank run, stock price plunge, and a government-ordered takeover. This has sparked worries about the health of other regional banks, including First Republic, which saw dozens of customers lining up to withdraw their funds.
The impact of Silicon Valley Bank’s failure has also been felt by companies and small business owners. For example, e-commerce platform Etsy notified sellers of delays in processing payments due to the bank collapse. This has raised concerns for sellers like Amanda Nielsen, who is in a holding pattern, waiting for payments. The ripple effects of this collapse have been significant, with panic and bank runs occurring within hours of the announcement that assets would be sold to boost the bank’s balance sheet.
The FDIC has stepped in and taken control of the bank, but the collapse has still had far-reaching effects. For instance, the collapse of Silicon Valley Bank has caused a swift downfall for a bank that was popular among venture capitalists and startups. The bank serviced top tech companies such as Shopify, ZipRecruiter, and Pinterest, and its sudden failure has left these companies searching for alternatives.
The potential ripple effect of Silicon Valley Bank’s collapse on other banks and the broader economy has led to concerns about the health of the banking sector. While some regional banks, such as First Republic, have seen big drops in their stock prices, banks that many of us use for day-to-day services, like Chase or Bank of America, have not seen a big plunge in their valuations at this point. This suggests that many investors and regulators see the risk of Silicon Valley Bank as contained to the bank itself, rather than being a broader problem for the economy.
While this is the largest bank collapse in the U.S since the 2008 financial crisis, there are some key differences between then and now. The 2008 crisis was broad-based, with large and small banks engaging in risky business and giving mortgages to home buyers who couldn’t afford them. This resulted in huge losses for the banks and triggered the Great Recession. In contrast, Silicon Valley Bank appears to be company-specific, catering to tech startups that came under pressure as interest rates rose and their venture capital dried up, causing its clients to withdraw their money. The bank’s downfall was also tied to a recent plunge in the value of bonds that it bought when interest rates were low.
Despite the significant impact of this collapse, our banking system as a whole is in a much stronger position today than it was over a decade ago. This is thanks to bank reforms and regulations that were put in place after the financial crisis. Regulators are now rehashing how this collapse happened in just two days and whether they could have spotted the risk any sooner. One of the questions that investors are asking is whether the federal government might step in and make all the deposits whole.
In conclusion, the collapse of the Silicon Valley Bank has raised concerns about the health of other regional banks and the broader economy. The ripple effects of this collapse have been felt by companies, small business owners, and investors. While there are some similarities between this collapse and the 2008 financial crisis, there are also key differences that suggest the risk is contained to the bank itself. Our banking system as a whole is much stronger today than it was over a decade ago, but regulators are still analyzing what happened and whether they could have spotted the risk any sooner.