Crypto Receives a Reminder of the Relevance of Banks
The closure of Silicon Valley Bank last week has sparked a period of unprecedented bank turmoil last seen during the Global Financial Crisis (GFC) in 2008.
While 2020 was a nightmare year for most, it was a boom for the tech sector. People were spending more time on their phones and computers, conferencing software came into its own, and new money and a hiring spree meant the sector was more vibrant than almost any other part of the economy.
Silicon Valley Bank (SVB), one of the leading banks in the technology sector, had $60 billion in customer deposits in the first quarter of 2020 and $200 billion by the first quarter of 2022. The good times weren’t to last.
Silicon Valley Bank Is the Largest Failure of a Bank Since 2008
However, the bank invested in treasury bonds and mortgage-backed securities but suffered grave losses when the Federal Reserve raised interest rates to combat rising inflation. Silicon Valley Bank sold assets to minimize losses. But when it announced it needed to raise $2.25 billion in capital, clients withdrew $42 billion in deposits. Regulators shut down the bank the following day. It’s the largest failure of a U.S. bank since the GFC in 2008.
However, on Sunday, the U.S. government announced depositors would be able to access their cash from Monday. All depositors would be fully protected, assuaging fears of a wider crisis. The U.S. Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) have stated that the taxpayer will not bear any losses from the move.