A special thanks to Ben McDonald, CEO & Owner, Destination Wealth Advisors, for this important banking update:
The recent collapse of Silicon Valley Bank has raised concerns and left many depositors worried about their uninsured funds. However, the US government has taken emergency measures to backstop billions of dollars in uninsured money in the bank to prevent a larger financial fallout.
Federal regulators are saying that all customers will have access to their deposits starting on Monday. This extraordinary move was necessary to backstop billions of dollars in uninsured money in the bank and prevent a larger financial fallout that could lead to greater panic.
Until the announcement, there was widespread fear among depositors of Silicon Valley Bank since federal insurance covers only up to $250,000, and more than 90% of the bank's deposits were above that cap. Federal officials said that no losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer. The Federal Reserve also announced new steps to make funding available to banks to cushion any potential risk prompted by the Friday collapse of Silicon Valley Bank.
In response to the collapse of Silicon Valley Bank, prominent venture capitalists took to Twitter over the weekend with doomsday predictions, claiming that the failure to back up deposits could lead to a catastrophe in the tech startups and the world of venture capital. More than 5,000 startup CEOs and founders pleaded with federal officials for support to back up deposits. "We are not asking for a bailout for the bank equity holders or its management; we are asking you to save innovation in the American economy," the founders and CEOs wrote in their petition. "Silicon Valley Bank's failure has a real risk of systemic contagion."
The measures taken by the US government to backstop uninsured deposits and provide funding to cushion any potential risk prompted by the collapse of Silicon Valley Bank have helped to restore some market confidence. The Federal Reserve's decision to make funds available to eligible financial institutions and ensure they can meet the needs of all their depositors is also intended to help restore confidence in the banking system. Fed fund futures surged in early trading to imply only a 28% chance of a half-point rate hike by the Federal Reserve when it meets next week, compared to around 70% before the Silicon Valley Bank news broke last week. Some research firms are now calling for no rate hikes in March.
Although the collapse of Silicon Valley Bank has raised concerns, the US government has taken emergency measures to backstop billions of dollars in uninsured money in the bank to prevent a larger financial fallout. This move by federal regulators to backstop uninsured deposits and provide funding to cushion any potential risk prompted by the collapse of Silicon Valley Bank has helped to restore confidence in the banking system. There is still more work to be done to ensure that depositors' funds are protected, and the government will need to work with Congress and financial regulators to consider additional actions that could strengthen the financial system.
If you're feeling worried, here's what you need to know.
Firstly, don't panic. Depositors at Silicon Valley Bank will be able to withdraw their funds effective Monday.
Secondly, the collapse of Silicon Valley Bank has caused some panic among depositors who had uninsured funds in the bank. However, the measures taken by the government have helped to restore confidence in the banking system. This means that the risk of a larger financial fallout has been mitigated.
Thirdly, the collapse of Silicon Valley Bank has affected the tech sector and venture capital. Startups and founders have expressed concerns about the impact of the bank's failure on innovation and the startup ecosystem. However, the government's actions to backstop uninsured deposits and provide funding to cushion any potential risk prompted by the collapse of Silicon Valley Bank have helped to restore market confidence.
In the coming weeks, we will be paying close attention to any further developments regarding the impact of Silicon Valley Bank's collapse on the American economy, particularly in the tech sector, venture capital, and banking. The government may need to continue to provide support as the dust settles. Investors should expect heightened volatility in both the equity and bond markets.
As always, we will be monitoring client portfolios and making necessary changes should the situation require.
Should you have any further questions we are available for a conversation.