Vocabulary

 

 
 
 
 
 

Video

 

 
 
 
 

Transcript

Silicon Valley Bank.

What happened?

CBS New Anchor: “A rough week for the banking industry.”
Garvin Thomas, Reporter: “The collapse of Silicon Valley Bank.”
CNN News Anchor: “The second biggest bank collapse in U.S history.”

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When you think of bank runs. you probably think of the 1930s or Mary
Poppins or sometime far in the past because that kind of stuff doesn’t
happen anymore.

But it does and it did last week with Silicon Valley Bank.

Bank runs happen because of one fundamental fact about banks: your bank does NOT have your money.

Bank Manager from an Old Movie: “The money’s not here. Well your money’s in Joe’s house; that’s right next to yours. And on the Kennedy house, and Mrs Maiklin’s house, and a hundred others.”

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All banks do the same thing: they take money from depositors . . . they loan some of that money out . . . or they go buy other assets . . .

And they can keep doing this: they can use other people’s money to make loans and to buy assets all they want . . .

Unless people all want their money back.

At the same time.

And that results in a panic — and a bank run.

1st Bank Customer in Old Movie: “The bank will give someone that money.”
2nd Bank Customer in Old Movie: “Well I’m going to get mine. Come along young man, any”

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But what happened with Silicon Valley Bank?
Why do people want all their money back?
And why didn’t the bank have their money?

Unlike the 2008 financial crisis, these weren’t bad loans . . . These weren’t toxic loans given out to people who couldn’t pay the money back.

Instead it had to do with bonds. Bonds or securities are usually a great asset because they’re very low risk and they earn a set rate of return.

So Silicon Valley Bank took people’s money, and they went and bought bonds at a set interest rate.

But as interest rates increase, the value of the bonds that they purchased went down in price: they were less valuable.

And normally that’s not a problem — unless you have to sell those bonds early, which is exactly what happened.

Customers wanted to take out more money than the bank was expecting — and so the bank had to go sell those bonds — at a HUGE loss means they didn’t have enough money for all those withdrawals.

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And of course when people heard that the bank might not have enough money, they want to take out more money . . . and that led to a bank run.

This prompted U.S Regulators to step in with emergency measures in including seizing another bank three days later in a bid to ease fears that depositors might pull their money from other lenders.

If everyone freaks out the same time, if we all go to our banks at the same time . . . we are all in trouble.

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The whole job of the government right now, and the Fed, the treasury . . . all they’re saying is listen banks are cool. You’re all good. You do not need to go to your bank.

Yes you’re insured up to $250,000, but you don’t need to go to get your cash out of your bank right now.

In fact don’t.

But why?

Because your bank does not have your money!

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Questions

 

Bank, Credit Union. Silicon Valley Bank is and has always been a very stable, secure financial institution. True or false?

Bank Teller, Loan Officer. Due to online banking electronic money transfers, and e-commerce, bank runs never happen today. Is this right or wrong?

Insurance. Are all of people’s bank deposits in their bank accounts?

Deposit, Withdrawal. “The money’s not here. Well your money’s in Joe’s house; that’s right next to yours. And in the Kennedy house, and Mrs Maiklin’s house, and a hundred others.” What did the bank manager mean by this?

Deposit, Savings Account. Do banks just keep everyone’s deposits sitting in their bank accounts? What do banks do with depositors’ money?

Withdrawal. Approval. What can cause a banking crisis? Did the video show scenes from the TV show Friends?

Credit Card, Debit Card. Did Silicon Valley Bank make high-risk investments with depositors’ money? What happened? Was it (entirely) Silicon Valley Bank’s fault?

Cash, ATM. Silicon Valley Bank depositors didn’t think or care about banking and financial events. Is this correct or incorrect?

Borrow, Lend. Are government regulators, the US Federal Reserve, the US Treasury taking a “hands off” approach regarding Silicon Valley Bank and other financial institutions?
 
 
 
Loan, Mortgage. Are you aware of other bank crisis?

Interest. How much do people trust (their) banks? People completely trust banks and other financial institutions, generally trust banks, in the middle, they both trust and are suspicious, they tend to distrust banks and other financial institutions, or they believe banks are scams and crooks, or it depends?

Monthly Installments. Does Switzerland have the most safe, stable and secure banks?

Insolvency, Bankruptcy. What might happen in the future?

Stocks, Bonds, Shares. What could or should people, banks, governments do?