Two US Banks Just Failed - What Happened, and What Now? | Summary and Q&A

TL;DR

Two U.S. banks, Silvergate Capital Corp and Silicon Valley Bank, have collapsed due to a bank run caused by customer withdrawals and the impact of rising interest rates.

Key Insights

• 😀 The collapse of Silvergate and Silicon Valley Bank is primarily due to a bank run caused by customer withdrawals, highlighting the challenges faced by the cryptocurrency sector and venture capital industry.
• 😮 Rising interest rates and concentration risk played significant roles in exacerbating these collapses, as banks struggled to sell assets at a depressed price to meet cash demands.
• 🍉 While there is concern about contagion and potential impacts on the financial sector, the current situation does not mirror the 2008 financial crisis in terms of scale and fundamental issues.
• 🤑 Depositors may receive some of their money back through the liquidation plans and the FDIC's involvement, but not all deposits are covered by FDIC insurance.

Transcript

hey guys it's Richard watching the plain bagel it's been a crazy week in the world of Finance as you've probably heard by now we've seen the collapse of not one but two U.S banks over the span of just a couple of days this past week it started on Wednesday with silvergate Capital Corp which is a crypto friendly institution whose stock was already d... Read More

Questions & Answers

Q: What caused the collapse of Silvergate Capital Corp?

The collapse of Silvergate was driven by a bank run triggered by customer withdrawals, specifically in the cryptocurrency sector. The bank was forced to sell assets at a depressed price to meet the high demand for withdrawals.

Q: Why did Silicon Valley Bank face large customer withdrawals?

Silicon Valley Bank experienced a significant run on its assets due to a potential credit downgrade and the panic resulting from a failed attempt to raise capital. This led venture capital firms and startups to withdraw their funds, causing substantial losses for the bank.

Q: How are depositors affected by the bank collapses?

Depositors of Silvergate and Silicon Valley Bank are likely to receive some of their money back. Silvergate plans to pay back deposits and meet its obligations through its liquidation plan. Silicon Valley Bank, under the FDIC, will sell assets to cover depositors' liabilities, but not all deposits are covered by FDIC insurance.

Q: Could these bank collapses trigger a larger financial crisis?

While there may be some fallout from these collapses, the situation is currently considered relatively idiosyncratic. Regional commercial banks like Silicon Valley Bank have more specific industry risks and cater to a distinct client base. Major banks like JP Morgan have more diversified client bases and are not as exposed to the same risks.

Summary & Key Takeaways

• Silvergate Capital Corp, a crypto-friendly institution, initiated voluntary liquidation after its stock plummeted, leading to customer withdrawals and losses of $718 million.

• Silicon Valley Bank, a commercial bank serving startups and tech companies, faced large customer withdrawals and a credit downgrade, resulting in the closure of the bank by the FDIC.

• The collapses are primarily attributed to a bank run and concentration risk, exacerbated by rising interest rates and the challenges faced by the cryptocurrency sector and venture capital industry.