The fall of Silicon Valley Bank surprised both the finance and tech industry, and many believe that this might affect other banks as well. According to a study, that may very well be possible should circumstances become severe.
Potential Collapse of Other Banks
The new study states that around 200 other banks may also collapse as Silicon Valley Bank did if around 50% of the American banks' depositors withdraw their funds. It was also mentioned that the lack of additional government involvement or recapitalization may also be a factor.
Uninsured depositors might withdraw their assets out of fear of losing them. The US government protects bank deposits of up to $250,000 reports say, but the uninsured deposit withdrawals may cause trouble and cause more banks to be at risk of failing.
According to Interesting Engineering, the bank's assets are mainly made up of mortgage-backed securities and government bonds, and the two have been affected by the Federal Reserve's recent increase in interest rates.
The Fall of Silicon Valley Bank
The mentioned bank is among the biggest lenders in the tech industry. It had connections with around half of the "capital-backed" tech and "life-science" companies, as well as over 2,500 venture capital firms, reports say.
However, an economic crisis in the form of inflation forced the Federal Reserve to increase its interest rates. The once-steady investments with low-interest rates were no longer as claimed and depositors were starting to get concerned.
Due to its large number of uninsured depositors, which can pull their money out of the bank if they sense signs of trouble. The issues in the economic environment were becoming rockier, depositors withdrew their assets and the bank had to compensate by selling its investments.
This loss rattled the tech industry start-ups that worked with the bank and started pulling out their money, burying Silicon Valley Bank even more and eventually resulting in its collapse. The bank's financial advisers tried to look for buyers to save the bank.
Sadly. The efforts were not enough and the Federal Deposit Insurance Corporation eventually took over the bank. This meant around $175 billion in customer deposits are now controlled by the federal regulator, as mentioned in The New York Times.
Read Also : Silvergate is Shutting Down Its Operations
Other Collapsed Banks
Before the failure of Signature Bank and Silicon Valley Bank, Silvergate was the first to fall. Silvergate Capital Corporation announced that it was voluntarily liquidating the bank due to the recent industry and regulatory developments.
According to the company, liquidation was the best course for the bank. Known clients of Silvergate are FTX and Genesis, which both have filed for bankruptcy. The shutdown was brought on by the withdrawals of customers worth $8.1 billion.
Similar to the Silicon Valley Bank, it is also being taken over by the FDIC in their agreement with a subsidiary of New York Community Bancorp, Inc., according to CBS News. 40 of the former Signature Bank branches will now go by the name "Flagstar Bank."
