Silicon Valley Bank’s recent failure has left its customers in a difficult situation following the government’s takeover. The bank’s inability to meet its deposit obligations triggered what is known as a bank run. The bank had invested its money in ventures that weren’t generating returns, leading to this unfortunate outcome.
Under normal circumstances, the Federal Deposit Insurance Corporation (FDIC), which insures deposits up to $250,000, would step in to cover depositors. However, the vast majority of Silicon Valley Bank’s customers had deposited billions of dollars, far exceeding the FDIC’s limit.
To address this issue, the government has pledged to protect depositors, with President Joe Biden reassuring the public that the US banking system is secure. However, shortly after Silicon Valley Bank’s collapse, regulators closed down New York-based Signature Bank, citing systemic risk. Experts warn that such incidents are likely to occur again, as many corporations are overleveraged in dollar debt.
The fallout from Silicon Valley Bank’s failure has been felt globally. European banks lost $100 billion in value within a week of the incident. Despite Europe’s stringent regulations, similar banking failures could still occur, and the contagion is spreading.