SVB Collapse: What the Silicon Valley Bank experienced is considered one of the oldest problems in the banking sector — a bank run. The last time US saw a banking crisis of this magnitude was in 2008.
Banking regulators in California Friday closed the Santa Clara-based Silicon Valley Bank (SVB), the 16th largest bank in the US until 2022-end, after its collapse as depositors started to withdraw their money earlier this week amid news of the bank’s poor financial health. The bank’s depositors were mainly workers in the technology sector and companies running on venture capital. What the SVB experienced is considered one of the oldest problems in the banking sector — a bank run.
What Is A Bank Run?
The dictionary meaning of a ‘bank run’ is the time when a large number of people simultaneously take out their money deposited with a bank or any other financial institution over fears that it could go out of business.
History is replete with instances of bank runs over concerns of solvency. In fact, it was in response to a bank run that the Federal Deposit Insurance Corporation (FDIC), which has been appointed as the receiver for the eventual disposition of SVB’s assets, was established in the year 1933. “In the 1920s and early 1930s, a rise in bank failures created a national crisis, wiping out many Americans’ savings,” the FDIC says on its website, adding: “Since FDIC insurance began in 1934, no depositor has lost a single penny of insured funds due to bank failure.”
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