Fear trickled through the bank sector following the collapses of Silicon Valley Bank and Signature Bank last week, prompting major federal intervention over the weekend to backstop uninsured deposits at Silicon Valley Bank in a bid to halt panic.
Silicon Valley Bank's collapse in particular marked the most significant banking failure in the United States since Washington Mutual faltered in 2008. More broadly, blowback from the cratering of the two banks could wreak havoc across the economy, a fate government authorities are desperate to avert.Here's everything you may have missed about the banking meltdown.Silicon Valley Bank was founded in the 1980s and helped fund tech startups across the country.
This is because higher rates meant that new bonds and treasuries earned more for investors than older ones. As a result, the older assets that Silicon Valley Bank stockpiled became less desirable and therefore shed value. On Thursday, customers withdrew $42 billion in a single day. For comparison, Washington Mutual"lost $16 billion over 10 days" during the financial crisis of 2008, according to Sen. Mark Warner .
"Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out," Yellen told CBS."The reforms that have been put in place mean we are not going to do that again." Simultaneously, the Fed announced plans to offer banks a separate facility to help them meet depositor withdrawals Sunday. Under the mechanism, banks can take heavily collateralized loans to up their cash to meet service requirements for withdrawals and other needs.
Similar to Silicon Valley Bank, many of Signature Bank's assets shed value as interest rates spiked. Authorities at the Treasury, Fed, and FDIC declared that as with those at Silicon Valley Bank, deposits at Signature Bank will be available Monday.Since the fallout from Silicon Valley Bank and Signature Bank, attention has turned to a roughly $620 billion hole in the banking system.
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