The Five Bank Failures: Silicon Valley, Silvergate Capital Corporation, Credit Suisse, First Republic, and Signature Bank Collapse

The first bank collapse, Silvergate Capital Corporation, happened on March 8th. On March 10th, Silicon Valley Bank (located in Santa Clara, California) collapsed. The bank had 209 million dollars in assets, making it the second largest bank failure in American history (the first one being Washington Mutual in 2008). Two days later, on March 12th, Signature Bank failed. Credit Suisse and First Republic Bank followed suit a few days later. Here’s why it happened and what the government is doing to stop the panic:

Silvergate Capital Corporation had over eleven billion dollars in assets, and was one of the biggest crypto banking companies. Their biggest client was FTX, a former cryptocurrency exchange and hedge fund. Ever since the collapse of FTX, clients of the company have started to doubt their partnership. Silvergate attempted to cover up approximately eight billion dollars in withdrawals after FTX went bankrupt. The bank was allowed an extension to March 16th, but ultimately decided to shut down and liquidate all of its assets.

Similar to Silvergate Capital Corporation, Silicon Valley Bank had invested in cryptocurrency and bonds that were worth little to nothing. Most of Silicon Valley Bank’s clients were businesses that had borrowed money from the bank to start their companies. Normally, there is a $250,000 limit to how much money the bank can guarantee to keep safe, but since the clients of this bank had deposits worth much more than that, people began to worry. Customers started to withdraw more than what the bank could give them, which forced SVB to sell its securities portfolio at a loss of $1.8 billion. The Federal Deposit Insurance Corporation (FDIC) stepped in and closed the bank down. This was the catalyst for other bank closures, as it sparked fear into people that their bank might close and they could lose all of their money. 

Following the SVB collapse, Signature Bank also collapsed, making it the third largest bank collapse in the country. The reason for its closure was the billions of dollars in deposits that people made after hearing about SVB’s failure. People started to transfer all of their money into  bigger banks in hopes that they could keep their money safe. 

The same fate befell First Republic Bank, where their wealthiest clients pulled all of their money out and put it into a larger bank. To deal with their losses and stabilize the bank, other large banks have given thirty billion dollars in deposits. Though this may seem like a lot, analysts are predicting this won’t be a solution to the bank’s problem. First Republic does have a lower number of uninsured deposits, because they have 68% uninsured, compared to SVB with 94% uninsured. The fact that their assets are more evenly spread out and their uninsured deposits are lower than other banks that have failed makes First Republic Bank less susceptible to collapse.

Credit Suisse, a bank located in Zurich, Switzerland that is over 150 years old, collapsed in under one week. Their bonds and stocks had wavered the past few weeks, creating concern for their customers. When the depositors decided to withdraw their money from the bank, it collapsed. Luckily, Switzerland’s largest investment bank, UBS, decided to buy out Credit Suisse for just $3.2 billion. 

Concern by the US Government that everyone will start withdrawing their money. The problem with this is that banks don’t have the funds to give everyone back their money. The government is urging people to keep their money in the banks and they say that they can guarantee their money is safe. Several politicians have spoken out about the panic throughout the country, one being Senator Jeff Jackson, who gave a concise statement about what happened, why it happened, and what’s being done about it. In summary, he says that Congress had an emergency Zoom meeting to discuss their next steps: they have guaranteed all of Silicon Valley Bank and Signature Bank’s clients their money, which they will be paying for with the funds that the banks pay into. Their main goal is to stop people from withdrawing money and creating a “domino effect.”

By Bay Tilley