In the wake of the Silicon Valley Bank’s collapse, we are urging you to not take your money out of small banks.
The IMF emphasizes the importance of banks saying that they are crucial to a country’s economy; they serve as the center point of the exchange of money throughout the economy. They gather savings from small and large depositors, make loans, run the payments system, and coordinate financial transactions.
It only took two days between Silicon Valley Bank (SVB)’s announcement that they were raising $2.5B to plug their balance sheets and the Federal Deposit Insurance Corporation (FDIC) taking over.
On Friday, the 16th-largest bank in the U.S., with $210 billion in assets, was seized by Californian regulators after depositors scrambled to withdraw their deposits over fears the bank is going under. SVB’s announcement they were raising capital proved fatal for the bank’s survival.
SVB’s collapse spooked depositors and a lot of customers at other banks, especially those whose deposits exceeded the FDIC’s $250,000 insurance cap and followed suit. Indeed, another bank fell. New York state regulators on Sunday— the third-biggest failure in U.S. banking history.
Following this, crypto-friendly Silvergate Capital also collapsed, but the government did not take control of Silvergate, which chose to liquidate.
Recession Will Quickly Follow
Slowly but surely, banks are falling one after the other. Small banks are losing a lot of deposits and this loss takes away their ability to loan money to individuals and small businesses.
Small banks will shut down if deposits are continually being taken out and as will the 2008 financial crisis, the recession will be quick to follow.
Standing Behind SVB
In spite of all the devastation from last week, several tech giants are standing behind SVB. In this Twitter statement, Hemant Taneja, CEO & Managing Director of General Catalyst, reiterate their support for SVB and maintain that it is one of the safest and most secure banks in the country.
This collective show of public support from the tech industry proves that not all hope is lost especially since they are putting their money where their mouths are. Hopefully, this will give a sense of calm to the general public to refrain from drastic measures and keep recession at bay.
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