The biggest bank collapse since 2008

Friday, March 10, marked the largest bank failure since the 2008 financial crisis. Silicon Valley Bank (SVB) went bankrupt due to a bank run, which is when too many people try to take their money out of a bank at the same time. In this case, fears of insolvency were spearheaded by billionaire venture capitalist Peter Thiel. Thiel led investors to pull their money out of the bank after he advised all of the companies in his Founders Fund to take their money out of SVB. SVB predominantly catered to tech companies and was a one-stop shop for getting loans. 

Outside of a Silicon Valley Bank in San Francisco Image courtesy of New York Times

SVB’s failure can also be attributed to the slow growth caused by increasing interest rates in the last year. Rate hikes by the Federal Reserve led companies that used SVB for funding to demand less money. Some people are worried that SVBs bankruptcy could lead to panic and bank runs on other banks. 

Senior Timur Kotelnikov has strong opinions on the topic and shared these concerns. 

“You never know how these things might turn out. SVB running out of money is scary. The way I see it, most people just put their money into a bank and don’t think twice about it. A situation like this makes me question my blind faith in the system,” Kotelnikov said. “I work hard for my money. I wouldn’t want to wake up one day, and poof, my money is gone. When I think about it, it might be smart to open up another account with a different bank so that I’m not keeping all my eggs in one basket.” 

Kotelnikov has put a lot of thought into this safety measure. Fortunately, the Federal Deposit Insurance Corporation (FDIC) provides insurance for deposits up to $250,000, protecting depositors from financial losses in the event of a bank failure. The FDIC has already taken control of SVB and is now evaluating its next move. The safety net from the FDIC is comforting to many, but some aren’t concerned about a bank run at all.

Senior Stephanos Papatsaras, who has stayed up to date on the SVB news, is not worried about a bank run, especially in Marin.

CEO of Silicon Valley Bank Greg Becker speaking at a conference in Beverly Hills. Image courtesy of Newsweek

“I don’t see the people of Marin getting paranoid about their money and trying to pull all of it out at their nearest Wells Fargo. [In order for] bank runs [to occur,] people need to be paranoid, and people in Marin don’t tend to be that paranoid,” Papatsaras said.

Papatsaras was much more concerned about the irresponsibility of the companies involved in the SVB crash.

“It’s hard to imagine how so many Silicon Valley startups made the same mistake. Why are companies that are working with hundreds of millions, if not billions, of dollars running it only through one bank?” Papatsaras said. “It seems like they are so focused on growth that they overlook protecting their own money. I’m not happy about it. I invested in some of the companies that put money into SVB. Their stock prices are hurt by [this] stupid mistake.” 

Only time will tell how the SVB collapse will affect the economy. People are waiting for the FDIC, who took control of the bank on March 10, to make a move, but in the meantime the Fed announced they will guarantee the reimbursement of all deposits. Regardless of what happens, the government’s decision and the people’s reaction will set a precedent for future banks and how similar situations will be handled in the future.