Is My Money Safe? Understanding the Collapse of Silicon Valley Bank
The sudden collapse of Silicon Valley Bank has left many people asking, “Is my money safe?”[0] The answer for most people is yes, as the US government insures the first $250,000 in eligible accounts.[1] But the failure of the bank, which saw its deposits more than triple between 2019 and 2021, is a warning to all bank customers.
Primary responsibility for the debacle lies with SVB’s management and lax regulators, who failed to identify and address potential risks.[2] Regulators have awesome powers to go into a bank, examine its operations and demand changes, but they rarely do.[2] The Trump administration’s penchant for installing regulators who are opposed to regulation and their failure to act decisively in the face of mounting risks has only heightened the crisis.[2]
The Federal Deposit Insurance Corporation (FDIC) has stepped in and taken control of Silicon Valley Bank, protecting all depositors who were facing losses.[3] It has also proposed tightening banking rules to prevent similar situations from happening in the future. But the culture of the regulators is as important as any rules, laws or tools at their disposal. The collapse of the two banks proves once more that we need to have more candor from regulators about what exactly are they worried about, and that financial instability can be created just because people get scared.[4]
For now, bank customers should take it as a reminder to stay vigilant, keep an eye on their deposits and ask questions if they are concerned about their money. It’s not just the big banks that we have to worry about – if the failure of smaller banks can cause such turmoil, then we have to regulate them and monitor them more.[5]
0. “Here's who made money amid the Silicon Valley Bank turmoil” ABC News, 17 Mar. 2023, https://abcnews.go.com/Business/made-money-amid-silicon-valley-bank-turmoil/story?id=97877087
1. “Should I pull my money out of the bank? What to know about bank failures” CNN, 13 Mar. 2023, https://www.cnn.com/2023/03/13/business/svb-fallout-consumer/index.html
2. “So Where Were SVB’s Regulators?” The Atlantic, 17 Mar. 2023, https://www.theatlantic.com/ideas/archive/2023/03/silicon-valley-signature-bank-collapse-regulator-culture/673423/
3. “Congressman discusses why Silicon Valley Bank failed – San José Spotlight” San José Spotlight, 17 Mar. 2023, https://sanjosespotlight.com/us-congressman-ro-khanna-discusses-why-silicon-valley-bank-svb-failed/
4. “Former FDIC Chair on Bank Collapses, the Federal Reserve and “Potential Fragility” in the Financial System” PBS, 16 Mar. 2023, https://www.pbs.org/wgbh/frontline/article/former-fdic-chair-bank-collapses-federal-reserve/
5. “What SVB’s collapse does and doesn’t mean for small banks” Vox.com, 16 Mar. 2023, https://www.vox.com/money/2023/3/16/23643664/silicon-valley-bank-jpmorgan-bank-run-big-banks
