America’s government steps in to protect depositors at Silicon Valley Bank
As SVB and a rival collapse, regulators have expanded their role as a backstop
WHEN ONE bank collapses, the panicked question is often “who’s next?” Other financial institutions can end up exposed because of connections to the collapsed institution, because they employ similar business models or simply because investor sentiment sours. Depositors face losses if their funds are too large to be covered by deposit-insurance schemes.
These were precisely the concerns provoked by the demise of Silicon Valley Bank (SVB), America’s 16th-biggest lender, after a failed attempt to raise capital and a run on its deposits on March 10th. Over the weekend rumours spread across social media about potential problems at a handful of other regional lenders. It was easy to imagine nervous corporate treasurers deciding to shift their deposits to the biggest banks, just in case. But on March 12th a joint response by America’s Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) helped take concerns about depositors off the table, while revealing another banking casualty.
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