What the Silicon Valley Bank Collapse Means for You

Late last week and over the weekend, Silicon Valley Bank and Signature Bank, two of America’s mid-sized banks, collapsed — some of the largest financial institution collapses since the Great Recession.

Since then, the government has acted to heal depositors and prevent potential ‘contagion’ of fear in the banking sector. The story moved quickly, and many Americans who lived through 2008 instinctively compare the current upheaval to the last At that time, several bank failures made headlines.

But unless you’re in the tech or startup sector, chances are your money has never touched Silicon Valley Bank or Signature Bank. So what are we to make of all this? We’ve provided you with everything you need to know so far:

To jump to the answers for each question, click on the bullet points below:

So what exactly happened?

On Friday, March 10th, the Silicon Valley Bank officially collapsed after a bank run. The bank had been forced to sell government bonds at a loss to allow customers to withdraw their funds. On the same day, the Federal Deposit Insurance Corp. the assets of the bank.

Unless you’re part of the tech world, SVB probably wasn’t a bank you had heard of or invested in. (Maybe it’s just been lumped in with one of those tech bro acronyms that’ve been causing financial drama for the past few months.) But it’s still a big deal. SVB was the bank of choice for many venture capitalists and startups. (Oh, and California wineries too.)

Then, on Sunday, March 12, regulators took control of New York’s Signature Bank, which had been engulfed in a spate of bank stock sales following the collapse of SVB.

On the same day, the FDIC, Federal Reserve and Treasury Department announced that beginning March 13, SVB and Signature Bank customers would have access to all of their funds — beyond the FDIC-insured $250,000 cap . The big move was made possible by a “systemic risk exception” that identified both bank failures as potential threats to the US economy and banking systems.

Was that a rescue operation?

Good question… and it depends on who you ask.

A bailout is traditionally defined as an infusion of cash or resources into a company that is otherwise on the brink of collapse – such as bankruptcy or default. In that sense, the answer is yes.

But this wasn’t a full bailout. Executives were ousted and shareholders and bondholders were not restored.

However, some economists who have spoken to Marketplace over the past few days have issued some stark assessments.

“Let’s be clear that this isn’t just a bailout for Silicon Valley Bank’s or Signature Bank’s uninsured depositors,” Peter Conti-Brown, a professor of financial regulation at the Wharton School, told Marketplace Morning Report’s David Brancaccio. “This is a salvation for every other mismanaged bank that the market has been willing to send into bankruptcy.”

The Federal Reserve also recently launched a program aimed at helping eligible banks and credit unions have cash available through government loans at cheap rates to avoid potential bank runs. In a recent episode of the Marketplace Morning Report, Joseph Wang, Monetary Macro’s chief investment officer, was silent about his thoughts on the lending program: “This is basically the biggest bailout of the banking sector since the Great Financial Crisis.”

So is this the same as 2008?

The economy we are in is very different from the economy before the Great Recession. However, given that the SVB collapse represented the largest bank collapse since 2008, it can be easy to make these comparisons.

The Dodd-Frank banking regulations, introduced after the 2008 financial crisis, were partially reversed under the Trump administration, but the rules still apply to larger financial institutions such as Citi Banks and JPMorgan Chases of the World. (It should be noted, however, that the CEO of the SVB explicitly campaigned to be exempt from banking regulatory reforms after the Great Recession).

The bailout of the 1980s also helped investors who owned stakes in big banks — not just the people who happened to be holding deposits. Another key difference is also which parties paid for the bank failures.

Who pays for these bank failures?

Unlike the 2008 bailout, taxpayers are not on the hook for the collapse of Silicon Valley Bank and Signature Bank. Rather, other banks foot the bill.

The Federal Deposit Insurance Corporation is exactly what it sounds like – a type of insurance that banks and other financial institutions put into to protect customer deposits.

“The banks will pay for it,” said Laurie Stewart, president and CEO of Seattle’s Sound Community Bank, in an interview with Marketplace host Kai Ryssdal on Monday. “People who are still buying insurance, which are the other banks that are surviving, are going to pay higher premiums… the fact that depositors are being cured, that cost is being borne by the industry. And that’s how it works and that’s how it should be.”

I’m not a millionaire and I’m not in tech. How does this affect me?

At the moment the chances are not much.

Fears of a possible domino effect from the collapse of banking systems persist. Swiss bank Credit Suisse, which has been plagued by scandals in recent years, has appeared to be faltering lately, although the Swiss central bank has since stepped in, offering a loan of up to $54 billion. Then on Thursday, First Republic Bank — whose shares plummeted earlier in the week — received a $30 billion cash injection from a collective of 11 major banks.

For those with money in the stock market, it can be tempting to review your portfolio daily to see how investments are performing (although personal finance experts consistently warn investors against doing just that). So far it seems that the stock market has largely ignored the implosions of two (almost three!) American banks. Despite price volatility here and there and a tumble on Friday following the collapse of the Silicon Valley bank, stocks ended the week on relatively mixed terms.

Regardless of what investments you have made, weakening confidence in global banking systems could affect you. As more people around the world demand full access to their funds, bank runs and collapses could infect financial systems around the world.

If you have less than $250,000 in an FDIC-insured account — and to be clear, most Americans fall well, well, well below that threshold — you’re backed by the full trust and credit of the US government protected. Ironically, when you bank with SVB or Signature Bank, your deposits are even more protected as there is no limit to the amount of money insured. Will this assurance be extended to customers of other financial institutions? Janet Yellen says not to hold your breath.

So if you’re lucky enough to have more than $250,000 and want to make sure your wealth is secure, you can always do what NBA Bucks star Giannis Antetokounmpo does and multiple bank accounts – in his case 50 – each of which withstands the maximum FDIC insurance limit of $250,000.

Could this lead to layoffs?

The collapse of SVB and Signature Bank is unlikely to affect most Americans’ jobs.

To be clear, had the Feds not invoked the systemic risk waiver, tech companies and startups with large amounts of cash at SVB or Signature Bank might have had layoffs on the horizon. Because how can companies pay employees when all their reserves have evaporated? These included companies like Roku, which had $487 million in uninsured deposits and other holdings in SVB, as well as companies like Roblox, Zoominfo, Coinbase, and Binance.

The future looks a little bleaker for the employees of SVB and Signature Bank. CNN reports that the FDIC offered SVB employees 1.5 times their salary for 45 days. Although it is common practice for employees of failed banks to continue working during any sort of transitional period, layoffs could be likely if other financial institutions step in to buy the failed banks. At the moment, however, there do not seem to be any buyers.

How is this affecting the housing market?

The housing market is unlikely to bottom out like it did during the Great Recession. This downturn was triggered by the bursting of the US housing bubble. It’s true that house prices have skyrocketed during the pandemic, and while experts expect prices to fall, prices are unlikely to fall as sharply as they did during the financial crisis, or have such a dramatic domino effect on the rest of the financial ecosystem.

So far, mortgage rates have fallen slightly in the wake of recent bank failures. Although this could signal a (potentially temporary) drop in mortgage rates, some economists are forecasting a tightening of credit – including home loans – as banks try to hold more cash on hand.

SVB’s implosion could also lower housing costs in areas like San Francisco and Seattle, traditionally boosted by tech jobs and stocks. However, affordable housing developers across California used the SVB for home loans, and its implosion is raising fears of development delays.

Of course, the direction of mortgage rates depends on the Fed’s next moves.

Does this affect the Federal Reserve and rate hikes?

The Federal Reserve remains committed to its goal of taming inflation, but the collapse of two top-tier banks has complicated its job. Big banks have lowered interest rate expectations for the year; While traders earlier this month were betting on the announcement of a half-point rate hike at next week’s Fed meeting, Goldman Sachs no longer expects a hike. And it’s not alone.

While the Fed’s course has yet to be determined, the drama of the past week or so has raised an important question that’s likely to weigh heavily on Fed Chair Jerome Powell’s mind: Is it possible to fight inflation and financial instability at the same time?

Last updated March 17th.