Right now the Federal Deposit Insurance Corporation is sifting through the wreckage of the collapse of Silicon Valley Bank – the largest banking failure in the United States since 2008.even those with balances above the $250,000 insured limit . For the rest of us it’s time to ask what lessons we can learn from this episode.
A pure-panic bank run is precisely not what happened here. Don’t get me wrong. In the end there was plenty of panic and people did run. As Jamie Beaton of Crimson Education There was herd behaviour in depositing at SVB – that it was some kind of status symbol to be banked by SVB rather a fusty New York bank.
In the wash up it looks like depositors will be made whole in order to protect contagion in the broader financial system. But depositors with big balances who get their money back should count themselves very lucky. This was an example of what not to do.Financial regulators should learn from this episode that it is not enough to simply check that fraud is not occurring and insure deposits up to $250,000.