You likely have heard about the recent Silicon Valley Bank (SVB) collapse and probably have questions. Here, we provide you with unbiased answers to your questions.
What is going on with Silicon Valley Bank?
Last week, Silicon Valley Bank made waves as it sold assets (long-term bonds) at a significant loss to fund deposit outflows. This was a result of the continued rise in U.S. interest rates, and Fed Chair Jerome Powell provided commentary that rates will stay high to combat inflation.
There was a classic run on the bank, as customers demanded their money back and in less than 48 hours, the nation’s 16th-largest bank was gone. As a result of the bank run, the stock fell 60% on Thursday and the same in premarket trading Friday before being halted.
Will the government bail out Silicon Valley Bank?
The bank was shut down Friday and the FDIC stepped in to protect insured deposits.
SVB was the second largest bank failure in history. On Sunday night, the Federal Reserve, US Treasury, and FDIC released a statement that all depositors would be able to access all their money on Monday.
On Monday, stocks largely rebounded (with the exception of Financials, of course). There could be a lower likelihood of the Fed raising rates.
What caused the Silicon Valley Bank collapse?
SVB was a unique bank. Given their geographic location (named appropriately), they focused primarily on technology and healthcare companies as clients. They also served venture capital and startup firms. This area has seen difficulty as interest rates have gone up and businesses have seen headwinds.
In our view, the fallout will be contained to Silicon Valley Bank and will not spread to other banks. given how fluid the situation is, it can be difficult to predict all potential impacts, but in our view, the fallout will be largely contained to Silicon Valley Bank and likely will not spread to other major banks.
The Federal Reserve stepped in to prevent a similar situation at other banks and avert a crisis across the entire banking industry.
Who do I go to with questions?
Please contact your advisor if you have questions about this series of events, or if you’d like to discuss anything else about your finances. As always, we’re here to guide you through uncertain times.