In a shocking turn of events, Silicon Valley Bank, one of the largest lenders in the tech industry, has collapsed and is now under the control of the federal government. The sudden implosion of the bank came after a run on deposits, causing the bank’s stock to lose 80% of its value this week, with 60% of that loss occurring in a single day.
This has sent ripples through the entire banking industry, with US banks losing over $100 billion in stock market value in just two days.
Customers, including individuals and household names like Airbnb and Pinterest, have reportedly lined up at bank branches across the country to demand their deposits back. This has caused concerns of contagion, with fears that other banks could suffer the same fate as Silicon Valley Bank.
One of the reasons for this collapse is that Silicon Valley Bank, like many other banks, took customer deposits and invested that money in other things like US government debt and mortgages. However, when the Fed started to hike rates aggressively, the bank immediately lost money on those investments.
At the same time, bank customers needed to withdraw more money, causing the bank to sell assets at a loss just to make good on deposit withdrawal requests. This led to a spiral of fear and erasure among customers, resulting in the run on the bank that ultimately caused its collapse.
While federal regulators are paying attention to this particular financial institution, it remains to be seen whether this could happen at other banks. This is a critical moment for the banking industry, and it is vital that regulators take swift action to prevent any further collapses.
