By now you have heard about it. One of the biggest bank collapses occurred recently, with Silicon Valley Bank basically getting wiped. The FDIC came in to aid the depositors of this bank, up to the standard number of $250,000. What is important to remember though is that the FDIC gave this money to the customers, not the banks themselves.
This is very different compared to 2008 where the banks were getting bailed out by the government, which is what made the situation so catastrophic. The FDIC covers those working with banks all the time. Now though, individuals are not harbored for the malpractice of the bank, like 2008. However, the argument made by many economists is that since the FDIC was giving almost the max amount of the $250,000 to the customers of SVB, this was a bailout. The average American wishes they could have $250,000 in their bank account, but a wide majority do not. Thus, the FDIC was bailing out Venture Capitalists, one of the more common customers of Silicon Valley Bank.
Setting this precedent is very dangerous due to the fact that now it seems that banks don’t need to be as cautious. Danger arises even more with this scenario because Venture Capitalists are already in a risky business, where they store their money should not be risky too.
There’s More?
Yes, there is.
First Republic Bank is currently feeling dangers of a bank run, as customers are now just fearful of not having their money with a major player such as JP Morgan or Bank of America. This is no fault of the practice of First Republic, but they are now being infused with $30 billion to stay afloat with money from their rivals. Big banks like the two aforementioned and 9 others such as Goldman Sachs, Wells Fargo, Citigroup, etc. came together to provide First Republic with funds. This shows how valued smaller regional banks are in the industry by other banks, but also how fickle they are by the opinion of customers.
First Republic stock has cratered over the past two days while other major bank stocks have also sold off slightly.
All that’s going on with banking could easily be over in a week. However, if more and more customers get upset with the way the banks and the government are working, banking as we know it could be over.
The Common Trader 