Vocabulary

 

 
 
 
 
 

Video

 

 
 
 
 

Transcript

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

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The Silicon Valley Bank collapsed on March 10th, after a run on deposits doomed the
tech focused lenders plans to raise fresh capital.

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

WSJ banking reporter Rachel Ensign explains how this crisis unfolded and what
could happen next

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HOW DID WE GET HERE?

What led to the Silicon Valley Bank collapse?

During the pandemic, Silicon Valley Bank had gotten all of these deposits, their deposits tripled. It was a huge, huge, huge influx.

And they did what banks do. They took some of the deposits and made loans,
but they also invested a lot of them in securities which are pretty safe.

Some issues had been bubbling under the surface of Silicon Valley Bank since the Federal Reserve started raising rates.

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When rates rose, the bonds fell in value.

It’s not a big problem for you — unless you have to go and sell the bonds.

But deposits started leaving the bank faster than they anticipated — and they had to sell their bonds and take a very big loss.

The bank made an announcement on Wednesday night that it needed to raise capital and was planning to do that the next day.

The investor completely freaked out, sold off the stock and then a bank run started where people tried to withdraw $42 billion in deposits just in that one day.

And by Friday morning, it was seized by regulators.

The regulators have responded in a way that they’re hoping stems the panic.

The Fed said we’re going to be offering this lending facility; that’s a backstop.
We’re gonna be insuring all of the deposits effectively of this bank that failed.

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HOW SIGNIFICANT IS THE COLLAPSE? How the SVB collapse could have broader economic effects

The collapse matters because it could have broader economic effects.
There was the risk that this panic would spread to other parts of the banking system.

We saw some really significant news with some of the banks that investors were most concerned about last week.

Most notable Signature Bank, a New York based bank was also seized on Sunday night.

It is the third largest bank failure in U S history. And First Republic put out a statement saying they’ve gotten some extra money from the Federal Reserve and also from JP Morgan.

They’re hoping that that reassures their investors and their depositors.

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WHAT COULD HAPPEN NEXT?

The key thing to watch for is, is the panic over?

That’s the big question.

Do people stop pulling their money out?
Are investors and customers kind of, are they reassured in the way that the government would like them to be?

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Questions

Bank. Silicon Valley Bank has its financial in perfect order. True or false?

Financial Institution. Did the Silicon Valley Bank have problems because it was robbed or hackers siphoned off billions of dollars from depositors?

Wall Street. The US Federal government did absolutely nothing. Is this right or wrong?

Stock Market, Stocks, Shares. Was the covid pandemic an unmitigated disaster for Silicon Valley Bank?

Investment. Did Silicon Valley Bank simply keep depositors’ monies in their accounts? Did depositors’ money simply sit in their accounts.

Deposit, Withdrawal. What (might have) triggered the banking crisis?
What happened as a result of the Federal Reverse raising interest rates?

Loan, Borrow. Depositors were perfectly confidence about Silicon Valley Bank and their deposits. Is this correct or incorrect?

Credit, Debt. Was Silicon Valley Bank unique? Was there a “domino effect”?
 
 
 
Interest Rate. Are you familiar with other banking crises or scandals?

Treasury Bonds. Why were there banking crises? What caused the banking crisis?

Mortgage. What have you been told or taught about money and banks by your parents, teachers, the media, self-help, motivational and success coaches and gurus?

Default, Foreclosure. What might happen in the future?

Bankruptcy. What could or should people, the governments, teacher, the media, society do?