Silicon Valley Bank (SVB) had a huge collapse. With $209 billion in assets, this is the largest single bank collapse since 2008. While this is a serious predicament, it does not mean a full economic crash. In 2020, four major banks failed resulting in a combined loss of nearly $500 billion in assets.
Banks make investments with our money. SVB invested more than half of their depositors cash in government bonds. When interest rates rise at an unheard of rate, it makes the bonds lose value.
When depositors heard that SVB was in trouble, they ran to remove their money. This caused SVB to have to sell off the bonds at huge losses. While most banks, including SVB are federally insured up to $250K per deposit account, most SVB funded tech companies had a lot more to lose than the cash insured amount.
This is not good news for people with large deposits in SVB, but a bank crash is not an economic crash. This is where we need to not run out and buy all the toilet paper off the shelves, so to speak.
When banks collapse, it makes people nervous. Nervous people make rash decisions such as removing all their money from banks. If this happens, it can cause smaller banks which cannot afford to cover large multiple withdrawals to also crash. When you get depositors crashing their own banks, then we can be thrown into an economic collapse from one bank being poorly managed.
A way that you can help without panicking is to find a trusted financial advisor who can tell you if your bank is making risky investments or failing to hedge their investments against the interest rate problems.
If your bank is doing all the right things, only take out the “toilet paper” you need for the month and try to avoid emptying the shelves.
NBPS has access to financial advisors. If you are worried about your deposits, we can help.