SVB collapse: Sorting fact from fiction in Silicon Valley Bank blame game

Friday’s dramatic collapse of a major bank on Friday was the result. Bank Critics on both sides have accused their political rivals of contributing to the crisis in the technology sector.

Silicon Valley BankA mid-sized institution that Last year, completed Closed Friday with deposits of nearly $200 billion, it was reopened Monday by federal regulators.

SVB COLLAPSE. DIRECTOR FAILED BANCK WAS THE AUTHOR OF DODDFRANK REFORM LAW

Wall Street and Washington began to blame each other almost immediately as fear of a wider fallout intensified.

These are some facts about the most outrageous claims made about SVB.

WHAT WAS THE REASON IT DID NOT GO SO WELL?

The bank’s leaders made several investments in the past two years that placed it in a weak position. But the sudden collapse of last week occurred when clients panicked and attempted to withdraw their funds.

Because cash was flowing freely and companies from the technology industry were putting more money into SVB, the bank’s total size has increased since 2021. SVB saw its deposits double in 2021 and it was able to lend more money to startups, venture capitalists, as well as tech companies who often align to do business with the bank.

SVB executives poured large sums of this new cash into investments usually considered low risk: government bonds and governmentbacked mortgage securities. The latter are more closely regulated following the 2008 financial crash.

SVB’s problems started when the Federal Reserve raised interest rates. This was because the value of SVB’s securities dropped significantly with rising interest rates. SVB wouldn’t take immediate damage from rising interest rates. However, they would only suffer losses if they had sold their investments while rates were high.

SVB was at this crossroads recently due to the economic downturn resulting from inflation, interest rates, a shortage of new investment in tech, and clients pulling out more money than usual to keep their businesses afloat.

SVB had to sell its securities in order keep up with the withdrawals. The bank announced on Wednesday that it had lost $1.8B on the sale securities that were much more valuable at low interest rates.

This news, along with an unsuccessful attempt by SVB to raise capital, scared the bank’s clients. It also caused a bank panic, which meant that many clients came to the bank at the same moment to withdraw their money. The bank had to close because it ran out of cash.

SVB IS GOING BANKRUPT?

Some Republicans accused Biden’s administration of offering to help the bank after Obama’s bailouts sparked backlash.

Biden would also be facing political problems because many of his clients are wealthy and work within elite industries. Therefore, a taxpayer-funded bailout wouldn’t look good on a president who boasts his connection with blue-collar America.

“Joe Biden is pretending this isn’t a bailout. It is,” Nikki Haley is the former governor of South Carolina who is running for the GOP Presidential nomination. “Now depositors at healthy banks are forced to subsidize Silicon Valley Bank’s mismanagement.”

“We cannot keep bailing out private companies because there’s no consequences to their actions,” CNN was informed by Nancy Mace (R.S.C.

The federal government has said all depositors in SVB will eventually get all of their money back — not just up to the $250,000 level that the Federal Deposit Insurance Corporation guarantees. The plan will also cover depositors who are not insured by FDIC.

The Biden administration insisted that SVB would not get a bailout.

“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” In a joint statement, the Fed, FDIC, Treasury Department stated their views on Sunday.

Instead, they said “a special assessment on banks” The FDIC would pay back what it plans to cover. The FDIC would pay all SVB accounts the money they receive from other banks that have insurance coverage.

This means that the losses suffered by the bank are not covered technically by taxpayer dollars.

Banks that do not receive the same treatment by the federal government will be responsible for the cleanup of the SVB mess. Only depositors insured under the FDIC are obligated by the federal government to repay deposits up to $250,000 each in case of bank failure.

Critics have raised concerns about the Biden administration’s handling of this case and asked if future bank failures will be treated the same way by federal regulators.

A generous loan program was also offered by the Fed to banks with the same problem as SVB. Too much money in Treasury securities that have lost too many value since interbank