Silicon Valley Bank
'Sunday night, the U.S. government announced that all depositors in the failed Silicon Valley Bank will have access to their money. In essence, Federal Deposit Insurance Corporation protection—usually limited to $250,000 per account—became unlimited.
Additionally, the Federal Reserve created a new program to help protect other banks from depositor flight.'
'..following the global financial crisis, U.S. regulators distinguished between smaller banks and “systemically important banks,” or SIBs, ones that alone could wreck the financial system and economy if they were to fail. For depositors at SIBs, all
their money is effectively insured to prevent bank runs. That insured coverage, of course, comes with strings attached, namely that SIBs are more closely scrutinized by regulators than other banks.
Depositors at smaller banks, such as SVB, on the other hand, are only formally insured up to $250,000. Over that amount, as the FDIC announced on Friday when it shuttered SVB, depositors are treated like ordinary creditors. The implication is that when a
bank like SVB fails, large depositors may only get pennies on the dollar back once other creditors are satisfied.'
The irony is rich. Suddenly, non-SIBs are systemically important. And if the government had not acted as it did in covering the potential losses of uninsured depositors, numerous regional players would have experienced depositor flight and a series of
bank failures would surely have followed. This weekend was full of stories of companies worrying about how to make payroll because money was suddenly frozen at SVB. Given the interlocking relationships of financial institutions and their important links
to the real economy, it is difficult to overstate the risks to the U.S. financial system and economy that would have erupted.'
https://www.barrons.com/articles/svb-depositors-bailout-fdic-fed-db7cfda0
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