(NewsNation) – The big question people are asking is whether the collapse of the Silicon Valley Bank (SVB) could have a ripple effect on the economy.
The collapse seems to have all mid-sized banks reconsidering how they lend money to their customers, or whether mid-sized, regional banks could suffer the same fate.
Should you be concerned?
On Sunday morning Treasury Secretary Janet Yellen tried to reassure the public that this will not happen.
“What I want to do is emphasize that the American banking system is safe and well capitalized. It’s resilient,” Sec. Yellen said, later adding, “I’ve been working with our banking regulators all weekend to draft guidelines to address this situation.”
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The Treasury Department, Federal Reserve and FDIC said Sunday all Silicon Valley bank customers will be protected and have access to their funds, announcing steps aimed at protecting the bank’s customers and preventing more bank runs .
“This move will ensure that the U.S. banking system continues to fulfill its important role in protecting deposits and providing access to credit for households and businesses in a way that supports strong and sustained economic growth,” the agencies said in a joint statement Explanation.
After the financial collapse of 2008, Congress passed a whole new set of banking regulations intended to ensure that banks did not take large risks in their lending and were able to withstand most economic shocks. It also meant regularly reviewing banks’ balance sheets.
Members of Congress and Biden administration officials say Sunday the SVB collapsed in part because some of those safeguards had been cut or relaxed in recent years.
This case is unique in that most of Silicon Valley Bank’s clients are large tech companies — many have increased their lines of credit and interest rates have risen faster than the bank could handle. All deposits over $250,000 made 90 percent with this bank remained uninsured.
How might this affect you at home? One way is the stock market, your investments, and possibly your 401ks. Monday will reveal how many more banks the market believes could be at risk.
The former head of the FDIC, the agency that insures bank deposits, thinks there could be more.
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But others, including the director of the Bureau of Management and Budget, say the safeguards of 2008 should still prevent another major collapse.
“After the financial crisis, the reforms that have been enacted have given regulators more tools and our system is more resilient and the foundation is stronger as a result,” said Shalanda Young, director of office management and budget.
At this point, no legislature or cabinet secretary is calling for a government bailout of the SVB. Some hedge fund managers say this should be the answer.
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All signs point to an orderly resolution of the bank, likely a sale of all or most of its assets to other banks.
With the Federal Reserve gradually raising interest rates over the past year to curb inflation, some believe that may be changing. The Federal Reserve is acting independently, but there is some speculation that it may want to avoid raising interest rates too much to avoid further collapses of these mid-sized regional banks.
The Associated Press contributed to this report.
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