In a recent TikTok video, North Carolina Representative Jeff Jackson discussed an emergency Zoom call he participated in with hundreds of members of Congress, which the Treasury Department convened. The purpose of the call was to announce the steps to secure the financial system after the collapse of Silicon Valley Bank (SVB), which had $209 billion in total assets and $175 billion in total deposits at the end last year.
With $209 billion in total assets and $175 billion in total deposits, SVB was a crucial player in the innovation economy and the backbone of the tech industry in Silicon Valley.
Its specialized financial services, industry expertise, network, and reputation were essential to the success of many startups.
In a shocking turn of events, two U.S. banks collapsed within 48 hours of each other, leaving many wondering which one could be next.
The first to fall was Silvergate Bank, which had been serving the cryptocurrency industry. The second was Silicon Valley Bank (SVB), which had been the go-to bank for tech startups in Silicon Valley.
Silvergate Bank's collapse came as a surprise to many, as it had been one of the few banks to embrace the cryptocurrency industry. However, the bank had reportedly taken on too much risk, and when the cryptocurrency market took a sharp downturn, it was unable to weather the storm. This left many cryptocurrency investors and businesses scrambling to find a new bank to work with.
SVB's collapse, on the other hand, was a much bigger shock. As the backbone of the tech industry in Silicon Valley, SVB had played an important role in the startup ecosystem.
Here are the main takeaways Jeff Jackson shared in his video, for the full video, watch it here:
- The primary issue was that the federal government only insures deposits up to $250,000, but the vast majority of customers at SVB had deposits larger than that due to the bank's specialization in small businesses and startups.
- Contagion occurred due to uncertainty about what would happen to customers with deposits over $250,000 and spread to other regional banks.
- To prevent a domino effect and stop the contagion, the Treasury Department announced that all depositors at SVB and a failed New York bank would be made whole and paid for with a fund that banks already pay into, not taxpayer money.
- Shareholders and bondholders in the two failed banks would be "wiped out."
- This decision aimed to limit contagion and prevent additional runs on smaller banks.
- Members of Congress sought reassurance that the steps being taken by the Treasury Department would be sufficient to stop the contagion, and there was no disagreement with the decision to make depositors whole.
- The situation was treated with the seriousness it deserved, with minimal grandstanding and bickering.
- There will likely be a political debate about regulating regional banks in the aftermath of this crisis.
- Deposits at banks are safe because the full weight of the federal government has decided that they will be.
What are your thoughts on this? Many startups and small businesses have been affected after the collapse of SVB. Is it just the beginning, or are these just bad examples?
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