The Collapse of Silicon Valley Bank and Signature Bank's : Another Financial Crisis After 2008?

The collapse of two major American banks, Silicon Valley Bank in California and Signature Bank in New York, has caused shockwaves throughout the business world. This is the second biggest banking failure in American history, second only to the 2008 collapse of the Washington Mutual Bank. While the Washington Mutual Bank crisis was due to irresponsible housing loans, the recent collapse of Silicon Valley Bank (SVB) and Signature Bank are due to a combination of factors, including the Covid-19 pandemic and heavy investment in tech startups and venture capital.

The Tech-Focused Bank That Took the Startup World by Storm

Silicon Valley Bank (SVB) was a unique player in the world of banking. Unlike other banks that looked for diversified customers, SVB focused almost exclusively on technology-based startups. By 2015, SVB had expanded so much that 65% of all startups in America were served by the bank. By the end of 2022, it had become the 16th biggest lender in America, with total assets valued at $209 billion. But then came the Covid-19 pandemic, and with it, SVB's problems began.

A Wake-Up Call for Startups on SVB's Collapse

In March 2021, the value of total deposits with SVB was around $124 billion, compared to $62 billion the year before in 2020. Then, disaster struck. SVB crashed, causing panic in the startup community. Many companies had deposited their funds with the bank and may have lost a significant amount of money. The American government had to step in, handing over the receivership of the bank to the FDIC and using customer deposits to create a new bank. Now, there's talk of a potential merger to salvage the situation, similar to what happened when the PMC bank crashed in India.

The Impact of SVB's Collapse

The crash of SVB has undoubtedly had an impact on the affected startups and the stock market. However, experts do not predict a global financial crisis like the one in 2008. Nonetheless, this serves as a reminder to individuals and companies to be cautious with their investments and diversify their banking options. The collapse of SVB and Signature Bank shows that even the most reputable banks can fail, and individuals must be vigilant in protecting their assets.

Lessons Learned?": Diversification and Vigilance Are Key

This recent collapse of Silicon Valley Bank and Signature Bank is a reminder of the fragility of the banking system and the importance of diversifying investments. While the American government is taking steps to mitigate the impact on affected parties, it is crucial for individuals and companies to take proactive measures to safeguard their financial interests. Whether it's investing in a range of banks or spreading investments across different asset classes, diversification is key. And, in the current climate of economic uncertainty, it's never been more important to stay vigilant and protect your assets.

Overall, the collapse of SVB should be seen as a wake-up call for startups and investors alike. While the impact may not be felt on a global scale, it serves as a reminder of the importance of diversification, vigilance, and caution when it comes to managing your finances. By taking proactive steps to protect your assets, you can weather any storm that may come your way.