Silicon Valley Bank Collapse Full Story And Reason Behind What Will Happen To Depositors Money Know Here | The full story of Silicon Valley Bank’s rise to the floor, why the bank sank and what will happen to its customers

Silicon Valley Bank: Last Friday, the banking regulator in America ordered the closure of Silicon Valley Bank and with this there was a stir in America, and Indian startups also got worried. With the collapse of the bank, the condition of its account holders worsened. The bank was mainly funded by tech companies, venture capitalists and certain types of startups and investors and depositors associated with banks have become very worried about their money. Although this (SVB) Silicon Valley Bank was the 16th largest bank in America before the bank sank.

New arrangement made for the bank

The Federal Deposit Insurance Corporation has been made the receiver of the bank. It has also been given the responsibility of keeping the money of the customers safe. In view of this, the Federal Deposit Insurance Corporation has also constituted a team.

US banking regulator also locked another bank Signature Bank

The thing to keep in mind is that another such bank has also come to the fore after this, on which the whip of the American banking regulator has run. Yesterday i.e. on Sunday, the American banking regulator has also put a lock on another bank Signature Bank. It is clear from this that there are some problems in the banking system in America. Although US President Joe Biden has said that depositors’ money is safe, there are rules regarding how much money the account holders get back after the bank collapses in America.

How much money did SVB have?

SVB had assets of $209 billion and deposits of $175 billion before its collapse. The special thing is that it is the second largest bank in the history of USA which has sat like this. Not only this, after the terrible economic crisis of 2008, this is the first bank on which such a lock has been hanged.

what is silicon valley bank

This bank was started in the year 1983 in Santa Clara, California and it was considered to be the biggest pro bank of the tech industry. In the year 2021, the bank claimed that it is involved in giving money to about half of the venture backed startups in America. Apart from tech companies, it has also worked for media companies like Vox Media. The bank also had deposits of several cryptocurrency firms. According to Circle, reserves of $3.3 billion are with SVB. Binance Coin and Coinbase halted withdrawals of Circle’s stablecoin USDC after news of the SVB collapse broke. Now $227 million of bankrupt crypto lender BlockFi is also stuck with SVB.

Why did SVB Bank collapse?

Like many other banks, SVB invested its depositors’ money in safe instruments like bonds. After the recession of 2008, interest rates in the US remained low continuously. On the basis of this, banks got cheap loans, after which venture capitals invested heavily in startups. This benefited banks like SVB, for whom these banks were proving to be trustworthy.

The real trouble started when the Federal Reserve started raising interest rates last year and has progressively brought it down from 0.25-0.50 per cent to today’s 4.5-4.75 per cent. Not only this, Fed Chairman Jerome Powell has said that interest rates may go up to 5.75 percent. Now due to this, the returns on bonds have come down and it has become difficult for banks like SVB. Not only did the returns decrease, but the maturity period of the bond also increased. Due to high interest rates, the funding of startups decreased, while the deposits of SVB are also continuously decreasing.

On March 8, the bank said it had sold shares worth $21 billion, at a loss of $1.8 billion, although the move was aimed at maintaining liquidity. The bank also plans to sell shares worth $2.2 billion. There was also a plan. Moody’s downgraded the bank’s rating and Peter Thiel’s Founders Fund told its companies to withdraw money from SVB. Several venture capitalists such as Union Square Ventures and Coatue Management did the same.

SVB was not in a position to withdraw such large amounts of money at such short notice and on 9 March the bank’s customers tried to withdraw $42 billion. This was equal to a quarter of the bank’s total deposits. On the other hand, trading in the bank’s stock stopped on Friday and the bank itself tried to sell it. On this the banking regulators intervened and closed the bank.

FDIC appointed receiver

After the bank’s collapse, the Federal Deposit Insurance Corporation (FDIC) created a new bank called the Deposit Insurance National Bank of Santa Clara. Insured depositors of SVB were kept in this so that they could get their money back. However, according to reports, 93 per cent of SVB depositors are not insured with the FDIC.

Will the customers get back their money deposited in SVB?

The FDIC ensures that bank account holders get back up to $2.5 million, so account holders who have deposits of less than $2.5 million will get their money back. Others will be able to get their money slowly. On Sunday, the Joe Biden administration has said that taxpayers associated with SVB Bank will not have to bear any loss. In a joint statement, the FDIC, the Federal Reserve and the Department of the Treasury said the banking system is free of problems and is based on solid fundamentals. It was also said in the joint statement that the depositors will get their entire deposit amount.

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