![]() But if they convinced people it would, then it would, because all you need for a bank run is for people to believe in a bank run. But even if it did fail, it’s not clear if it would have infected other banks normally. It would create contagion.Īnd the thing about that is it’s not clear that’s true, just normally, if Silicon Valley Bank had failed - not even clear it would have failed if the venture capital class hadn’t created their own bank run on it. And they used that narrative power to shout as loudly as they could that if their bank failed, it would create a nationwide bank run. They are people who can convince other people of things. They can write op eds in the major papers. The thing about the people who banked at Silicon Valley Bank is they’re very well known, they’re very powerful, and they have a lot of control over the narrative. And they can spread, and they can destroy healthy banks, too, because banks do not keep enough money on hand to give everyone their money all at once.Īnd then you get this other issue. And then the thing about bank runs is they’re psychological phenomena. So we get a bank run on Silicon Valley Bank. So as interest rates began rising over the past year, they got battered.Īnd these bonds, if they wanted to sell them, were worth less. But those were a different investment at a time of really low interest rates. They had taken all that money the startups gave them and put it into things that looked pretty safe, like treasuries. And Silicon Valley Bank, on the other side of its ledger, it held tons of bonds. And they’re very worried about anything happening to their money. And these accounts, they were concentrated in the same industry, Silicon Valley, an industry getting battered by higher interest rates, where you’re seeing huge layoffs, where you’re seeing a kind of change in its own understanding of itself.Īnd so suddenly, these startups, they need their money. ![]() At Silicon Valley Bank, and I’ve seen some different numbers here, it seems only a single digit percentage of the accounts were under $250,000 - only a single digit percentage. Why run to the bank and try to get your money back if the government will just give it to you anyway if anything happens? So at the average bank, about half of all accounts are F.D.I.C. will pay every depositor back up to $250,000, and that is usually enough to stop a bank run from even happening. And having a bunch of customers with really big accounts in your bank, that actually changed the situation, because one reason bank failures often aren’t a big deal or don’t happen at all is that most accounts are F.D.I.C. Roblox, the online game company, they had $150 million just sitting in the bank. Nearly half of venture finance backed companies had money in there - nearly half.Īnd some of them had a lot of money just sitting there. ![]() And so it was absolutely central to the startup ecosystem out here. I mean, it was a bank of Silicon Valley for one thing. I’d say it was not the kind of bank on its own that we would usually worry about. It was the 16th biggest bank in the country. So what was Silicon Valley Bank? It’s weird. Bank failures, they matter when the banks are really big or they’re really connected to other parts of the financial system. Or that eight failed in 2017 - but most of those banks were pretty small. Did you know that 18 banks failed in 2014? Honestly, I didn’t, until I looked it up. Now, bank failure, not necessarily the biggest deal in the world. So I’m not telling you anything you don’t know here. Transcript Why Silicon Valley Bank Collapsed - And What Comes Next The economic writer Noah Smith breaks down the recent bank failure and the questions emerging in its aftermath. ![]()
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