Hello, everyone. We wanted to share a quick update with all of you about Silicon Valley Bank (SVB) and Signature Bank.
I would like to share about SVB first. SVB specialized in working with technology companies and start-ups. Those companies were operating and doing very well until last year. They started to realize they are not doing well which means they need to start withdrawing cash to cover their liquidity needs and continue to operate. SVB noticed those companies are withdrawing much more cash than usual and SVB does not have sufficient cash to cover those requests. SVB had to sell some of its securities to cover those requests which caused SVB to struggle. Regulators for the state of California made the decision to seize and control the bank. In an unrelated move, Signature Bank of New York became vulnerable and was taken over by regulators as well.
On Sunday, the Treasury, Federal Reserve, and Federal Deposit Insurance Corporation (FDIC) released a joint statement to announce that they assured depositors at these banks that they would have access to all their money. They also took the extraordinary action of designating SVB and Signature Bank as a systemic risk to the financial system, giving regulators flexibility to backstop the uninsured deposits. Regulators hoped that by protecting these deposits, they would bolster confidence in the banking system.
SVB is the second-largest bank to fail since 2008. 2008 was the Great Financial Crisis. With this situation, it does not seem to cause significant concern for the banking system contagion seen during the Great Financial Crisis.
Now, it is important for everyone to be aware of how FDIC (Federal Deposit Insurance Corporation) works. The limit for FDIC coverage is $250,000 per depositor, per bank, in each account ownership category. That’s how FDIC insures the money in banks.
Thank you.
