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Tech giant’s fall: Silicon Valley Bank’s challenges have ripple effects on other banks

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Tech giant’s fall: Silicon Valley Bank’s challenges have ripple effects on other banks
Pedro Domínguez Rojas

Pedro Domínguez Rojas

  • Updated:

If you are not in control of financial matters, the situation of Silicon Valley Bank must have left you broken. A few weeks ago, the once largest bank in Silicon Valley (home to virtually all the major U.S. technology companies) collapsed completely, and all its customers started withdrawing their money as if there was no tomorrow. The result? The biggest U.S. bank failure since the great crisis of 2008.

The big problem with this situation is that it has not only harmed the bank’s customers, but has also dragged down other major banks, including Signature Bank in New York and Credit Suisse in Switzerland. Faced with this situation, you may ask yourself: “But what happened to cause this whole mess? Or even: “Is my bank in danger?

To begin with, Silicon Valley Bank was selling you the idea that if you deposited your money in its bank, you would earn more money than if you deposited it in other banks thanks to its high interest rates. The problem is that, in order for customers to get that money back, the bank needed a lot of money to respond with, and had to borrow it from the Federal Reserve, the U.S. central bank.

But all this happened when the world was not yet on fire. When the global economic problems started and everything started to go up in price, Silicon Valley Bank had less and less room to guarantee money to its customers (and there were a lot of them, since they were reportedly lending to just about anyone).

All this led to the moment when the bank announced that it had lost a lot of money ($1.8 billion) after the Federal Reserve raised the interest the bank had to pay on the loans it took out, causing customers to run like hell to get their money out and avoid going broke. All of them were guaranteed a percentage of the money deposited with the bank, but nobody wanted to take a gamble, of course. And, in a matter of days, the bank collapsed and the U.S. regulators seized it.

But it didn’t stop there. The banking insecurity spread to Signature Bank, which shared many of its clients with Silicon Valley Bank, and the New York bank also ended up collapsing due to the impossibility of giving money to all its clients.

These banking problems caused everyone to look closely at their investments in many banks, and Credit Suisse suffered the consequences first hand. With thousands of scandals behind it and problems of all kinds, one of Switzerland’s most important banks wanted to negotiate its sale in the face of the very real possibility of bankruptcy.

But just before it was sold to Saudi National Bank, the latter backed out because of the banking crisis that had been declared, and Credit Suisse was left with one hand in front and one hand behind. Faced with this situation, the Swiss National Bank itself had to intervene to avoid greater evils, finally facilitating the purchase from the Saudi National Bank.

But don’t worry, your money is not at risk. Due to the particularities of these banks and the type of clients they had, there are many experts who guarantee that the situation will not spread to “normal” banks, like those used by most mortals. However, it is not known whether other similar banks will suffer the same fate.

Some of the links added in the article are part of affiliate campaigns and may represent benefits for Softonic.

Pedro Domínguez Rojas

Pedro Domínguez Rojas

Publicist and audiovisual producer in love with social networks. I spend more time thinking about which videogames I will play than playing them.

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