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Regulators shut down Silicon Valley Bank on Friday and halted account withdrawals.
Over the weekend, SVB customers worried if they’d get their money back on time.
The government stepped in Sunday with the largest rescue package since the 2008 financial crisis.
The collapse of Silicon Valley Bank prompted the US government to roll out the biggest rescue package since the 2008 financial crisis.
On Sunday, the US Treasury, Federal Reserve, and Federal Deposit Insurance Corporation said in a joint statement that all depositors of SVB would be made whole on Monday. They also rolled out other measures to support the broader financial system.
SVB was not a giant bank — it ranked 16th in US by assets. So why did the government step up in such a big way? To answer this, let’s start at the beginning.
Why did Silicon Valley Bank collapse?
When the tech boom turned into a bust last year, SVB’s startup customers began withdrawing some of the money from their accounts. That pushed the bank into selling some of its bond holdings, crystallizing losses of almost $2 billion last week.
The bank tried to raise new capital, but its stock slumped on Thursday, the day those deals were supposed to happen. Meanwhile, venture capitalists and startup founders, many of them SVB clients, fomented a panic on Twitter about the strength of the financial institution.
This social media firestorm created a bank run where SVB customers raced against each other to pull money from the bank. More than $40 billion was withdrawn suddenly. By Friday morning, the FDIC shut SVB down and halted any more withdrawals.
Did the government bail out Silicon Valley Bank?
No. SVB was closed by regulators, and is now under the control of the FDIC. When a bank fails, this is the government agency that ensures depositors get access to their money. Shareholders will get wiped out, and management has been removed.
The FDIC insures bank deposits up to $250,000 per account. Any missing money is paid by the FDIC. But this cash doesn’t come from taxpayers. Instead, the agency raises money from assessments on all US banks. This is how the SVB backstop is being funded.
If the FDIC runs out of money, it can tap the US Treasury Department, which would mean taxpayer involvement. But even in the 2008 and 2009 financial crisis, when hundreds of banks failed, the …read more
Source:: Business Insider