A run on the bank

Silicon Valley Bank failure creates economic concerns

Madelyn Lerew

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Photo courtesy of Flickr.

Silicon Valley Bank (SVB) logo. SVB failed on March 10 which created public fears, and prompted government action.

    Silicon Valley Bank (SVB), is the largest bank that has failed following the 2008 financial crisis. The bank provides numerous loans to startup tech companies, which means it holds multiple accounts of over $250,000. According to NPR, when tech companies had an amazing year in 2021 it also brought wealth to the bank. SVB invested billions into U.S. Treasury bonds that year, while interest rates were extremely low. Now that interest rates have risen back up and the tech sector is not doing as well, the bank has had to sell the loans at a discount price which caused them to lose $1.8 billion. This loss has caused bank clients to worry about the safety of their money in SVB, and caused a run on the bank on March 10. Merriam-Webster defines a ‘run on the bank’ as, “An occurrence when a lot of people take their money out of a bank because they are afraid that the bank will fail.”

    Due to the type of clientele, SVB attracted there are concerns as to how this will affect new startups trying to get funding. Junior Owen Marietta believes this, but also feels that other banks in the industry will be able to give out loans.

    “The failure of Silicon Valley Bank could potentially make it harder for new technology startups to get funding,” Marietta said. “The bank was a big player in the venture capital space, so its collapse might mean that there’s less money available for these types of companies. That being said, it’s important to remember that there are other banks and investors out there who may step up to fill the gap.”

    Economics teacher, Jeremy Guler, shares the concerns of Marietta however he holds the conviction that some startups are not going to receive loans. 

    “It sounds like it’s going to affect technology startups specifically because that was who they were financing,” Guler said. “That just means that those startups are going to have to go somewhere else to get money. While banks make all their money on loans, startups are riskier, so the bigger banks may choose not to give them the money. So it means that the startups are going to have a harder time getting money. The ones that do get the money are probably pretty good and have a much better chance of success because they’re not just throwing money away.”

    According to Guler, the federal government ensures $250,000 in deposits in the case of a collapse, to ensure that bank clients don’t lose all of their money. Despite this, there are still fears instated following the collapse of a bank. 

    “When a bank fails, it can definitely make people feel uneasy about the banking system as a whole,” Marietta said. “It’s normal to worry about whether your money is safe and whether you can trust the system. However, it’s worth noting that the banking industry is generally pretty stable and that one bank failing doesn’t mean that the entire system is going to collapse.”

    In order to combat the fear created by the collapse, according to the Associated Press,  the federal government stepped in and covered all deposits within SVB. This covered all $2.4 trillion dollars in deposits since most clients had more than $250,000 dollars in the bank and would have lost a significant amount of money. Guler questions what situations qualify actions, such as these, from the federal government. 

    “Back in 2008 when we had the financial crash and [the government] came in and did some support,” Guler said. “It’s very interesting and it’s a very fine line of when they decide to step in or not step in. Who are they stepping in for is [it the] lower class, middle class, upper class or businesses? How they decide to do that seems sketchy, [but] by them doing what they did, it stopped everybody from freaking out. You can argue that that was smart, but long term where are the consequences?”