Silicon Valley Bank biggest US lender to fail since 2008 crisis: Finance expert explains impact
Houston (The Conversation): Silicon Valley Bank, which catered to the tech industry for three decades, collapsed on March 10, 2023, after the Santa Clara, California-based lender suffered from an old-fashioned bank run. State regulators seized the bank and made the Federal Deposit Insurance Corporation its receiver.
SVB, as it's known, was the biggest U.S. lender to fail since the 2008 global financial crisis and the second-biggest ever.
We asked William Chittenden, associate professor of finance at Texas State University, to explain what happened and whether Americans should be worried about the safety of their financial system.
Why did Silicon Valley Bank collapse so suddenly?
The short answer is that SVB did not have enough cash to pay depositors so the regulators closed the bank.
The longer answer begins during in the pandemic, when SVB and many other banks were raking in more deposits than they could lend out to borrowers. In 2021, deposits at SVB doubled.
But they had to do something with all that money. So, what they could not lend out, they invested in ultra-safe U.S. Treasury securities. The problem is the rapid increase in interest rates in 2022 and 2023 caused the value of these securities to plunge. A characteristic of bonds and similar securities is that when yields or interest rates go up, prices go down, and vice versa.
The bank recently said it took a US 1.8 billion hit on the sale of some of those securities and they were unable to raise capital to offset the loss as their stock began dropping. That prompted prominent venture capital firms to advise the companies they invest in to pull their business from Silicon Valley Bank. This had a snowball effect that led a growing number of SVB depositors to withdraw their money too.
The investment losses, coupled with the withdrawals, were so large that regulators had no choice but to step in to shut the bank down to protect depositors.
Are the deposits now safe?
From a practical perspective, the FDIC is now running the bank.
It is typical for the FDIC to shut a bank down on a Friday and have the bank reopen the following Monday. In this case, the FDIC has already announced that the bank will reopen on March 13 as the Deposit Insurance National Bank of Santa Clara.
At the end of 2022, SVB had 175.4 billion in deposits. It's not clear how much of those deposits remain with the bank and how much of those are insured and 100% safe.
For depositors with 250,000 or less in cash at SVB, the FDIC said that customers will have access to all of their money when the bank reopens.
For those with uninsured deposits at SVB basically anything above the FDIC limit of 250,000 they may or may not receive back the rest of their money. These depositors will be given a "Receiver's Certificate" by the FDIC for the uninsured amount of their deposits. The FDIC has already said it will pay some of the uninsured deposits by next week, with additional payments possible as the regulator liquidates SVB's assets. But if SVB's investments have to be sold at a significant loss, uninsured depositors may not get any additional payment.
What was the last US bank to fail?
Prior to the failure of SVB, the most recent bank failures occurred in October 2020, when both Almena State Bank in Kansas and First City Bank of Florida were taken over by the FDIC.
Both of these banks were relatively small with about 200 million in deposits combined.
SVB was the biggest bank to fail since September 2008, when Washington Mutual failed with 307 billion in assets. WaMu fell in the wake of investment bank Lehman Brothers' collapse, which nearly took down the global financial system.
On the whole, U.S. bank failures aren't all that common. For example, there were none in 2021 and 2022.
Is there any risk that more banks might fail?
At the end of 2022, SVB was the 16th-largest bank in the United States with 209 billion in assets.
That sounds like a lot and it is but that's just 0.91% of all banking assets in the U.S. There is little risk that SVB's failure will spill over to other banks.
Having said that, SVB's collapse does highlight the risk that many banks have in their investment portfolios. If interest rates continue to rise, and the Federal Reserve has indicated that they will, the value of the investment portfolios of banks across the U.S. will continue to go down.
While these losses are just on paper - meaning they're not realized until the assets are sold they still can increase a bank's overall risk. How much the risk will go up will vary from bank to bank.
The good news is that most banks currently have enough capital to absorb these losses however large in part because of efforts taken by the Fed after the 2008 financial crisis to ensure financial firms can weather any storm.
So rest easy for now, the banking system is sound.
Let the Truth be known. If you read VB and like VB, please be a VB Supporter and Help us deliver the Truth to one and all.
Karnataka Union of Working Journalists' (KUWJ) announces 2024 annual awards
VB scribes Yogesh Malur, Abdul Rahiman Talapady among awardees
Bengaluru: The Karnataka Union of Working Journalists (KUWJ) has announced its annual awards for the year 2024, recognising journalists across various categories.
Vartha Bharati journalists Yogesh Mallur and Abdul Rahiman Talapady are among the awardees. Yogesh Mallur has been selected for the G. Narayanaswamy Award for Best Rural Reporting, while Abdul Rahiman Talapady has been honoured under the Tagadoor Kamalamma Veeregowda Award for reporting on farmers’ livelihoods and distress.
The awards will be presented at the 40th State Journalists’ Conference to be held in Bidar on April 11 and 12, KUWJ state president Shivanand Tagadur and general secretary G.C. Lokesh said in a release.
Details of the awards:
1. G. Narayanaswamy Award (Best Rural Report)
Yogesh Mallur, Vartha Bharati, Bengaluru
K.A. Ismail, Shakti, Kodagu
2. Patel Bhairahanumayya Award (Best Humanitarian Report)
Mallaiah Polampally, Kannada Prabha, Shahpur, Yadgir
Ravikumar Kaggannavara, Kannamma, Dharwad
3. Giridhar Award (Best Crime Report)
Basavaraja Kattimani, Kannada Prabha, Hunasagi, Yadgiri
P.K. Ravikumar, Vijayavani, Mysuru
4. B.S. Venkataram Award (Best Scoop Report)
Odesh Sakleshpur, Prajavani, Ramanagara
Mahesh Munnayyanvara Math, Prajavani, Mahalingapur, Bagalkot
5. K.A. Nettakalappa Award (Best Sports Report)
Narayanarao Deshpande, Samyukta Karnataka, Hubballi
Prasad Shettigar, Vijayavani, Bengaluru
6. Khadri Shamanna Award (Best Political Criticism)
Dayashankar Maili, Sudi Mula, Mysuru
Shankar Pagoji, Udayakala
7. Mangala M.C. Varghese Award (Weekly Newspaper Article)
M.G. Nayak, Sudha (Prajavani), Kumta, Uttara Kannada
Venkatesh S. Sampa, Editor, Sampada Saalu
8. Tagadoor Kamalamma Veeregowda Award (Farmers’ Life and Suffering)
Jayaramu, Samyukta Karnataka, Channarayapatna
Abdul Rahiman Talapady, Vartha Bharati, Mangaluru
Indira, Hospet Times, Hospet
9. R.L. Vasudevarao Award (Forest Report)
P. Paramesh, Sudi Mula, Manvi, Raichur
Koushalya D. Falanakar, Gumbaz Express, Vijayapura
10. R.L. Vasudevarao Award (Wildlife Report)
Nagaraj Navimane, Vijaya Karnataka, Mysuru
M. Narasimha Murthy, Kannada Prabha, Bengaluru South
11. B.G. Thimmappaiah Award (Economically Weaker Section Report)
12.
Rajesh Shetty Dota, Vijayavani, Mangaluru
Sharat Kumar S., Udayavani, Shivamogga
12. Mandibele Shamanna Memorial Award (Rural People’s Life Report)
Shankar Katte Malalawadi, Janamitra, Hunsur
Shivaraj Sunkada, Mudgal, Lingasugur, Raichur
Prashant Pade, Udayavani, Kundapura, Udupi
13. Nadaprabhu Kempegowda Memorial Award (Bengaluru Urban and Rural)
H.P. Praveen
Prashanth Rippanpet
V.S. Honnachar, Leaders Weekly
Zukriya, Times of Karnataka
14. Yajaman T. Narayanappa Memorial Award (Best Agricultural Report at District Level)
Venkatesh Gudeppanavara, Vijayavani, Mudhol, Bagalkot
Manjunath N., Bellary, Kavithal, Raichur
15. Nadigera Krishna Raya Award
Sathish Babu, Udayavani, Bengaluru
A. Akshara, Senior Journalist
16. Sunnuvanda Srinivas Changappa Award (Report on Soldiers)
A. Appaji Gowda, Mulbagal, Kolar
17. K.N. Subramanya Award (English Newspaper Report)
Apyan Yasmin, The Hindu
Vikar Ahmed, Frontline, Bengaluru
18. T.K. Malagonda Award (Investigative Report)
Sivananda Hiremath, Vijayavani, Gadag
Tiptur Krishna, Adityavani, Tiptur
19. Actor-Director Dwarakish Memorial Award (Film Category)
S. Jagadish Kumar, Cine Suddi
20. Abhimani Prakashan Award
Mahesh Hegde, Samyukta Karnataka, Sagar, Shivamogga
Ravindra Talagade, Vijaya Karnataka, Ballari
21. Best Page Designers
Sandesh, Pratinidhi, Mysuru
22. Best Desk Management
Vijayakumar, Vijayavani
23. Newsreel (Report with Photograph)
K.V. Balaram, Kikkeri, Mandya
M.R. Manjunath, Senior Photographer
24. Photography / Cameramen
Ganesh, Vijaya Karnataka
Babu Mia, Kalaburagi
25. Ganesh G. Award
M.P. Arun Kumar, City Highlights, Shivamogga
Mahantesh, Andolana, Mysuru
26. K. Prahladrao (Mandya) Award
K.S. Janardhanachari, E Sanje
Ramesh K., Kannada Prabha, Bangarapet, Kolar
K.V. Nagaraj, Prajavani, N.R. Pura, Chikkamagaluru
27. Garudanagiri Nagaraj Award
B. Shivarudrappa, Kannada Prabha, Holalkere, Chitradurga
Ramesh Kumar Naik, Vishwavani
Ramakrishna, Samyukta Karnataka, Mangaluru
28. Gurulingaswamy Holimath Award
Devaraja Kappasogi, Kannada Prabha, Chamarajanagar
Navyajyoti, Hosa Diganta
29. Prajapragati Award
Rabindra Talagade, Vijaya Karnataka, Ballari
Brahmananda Hadagali, Kannada Prabha, Belagavi
30. B.A. Nandikolumath Award
H.K. Nataraj, Udayavani, Davanagere
Ramachandraiah, Kunigal, Samajvani, Tumakur
Electronic Media (TV) Section:
Best Political Analysis
Prashanth Natu, Suvarna TV
Pramod, TV9
Best Anchor
Arun C. Badiger, Public TV
Kiran Kumar D.K.
Development / Social / Humanitarian Report
P.D. Veeranna, Chandana TV, Tumakuru
Thimme Gowda, News18, Bengaluru
Maruti Pavagada, Guarantee News
Raju B.R., News 1st, Koppal
Vithala Caravada, Republic Kannada, Davanagere
Mohanakrishna, Akashvani / Doordarshan, Hassan
KUWJ Special Awards:
Vijaya Biradar, Jamkhandi
Sridhara Uchila, Mumbai
Srikanth, Kasaragod
Sanjeevarao Kulkarni
