Two US banks collapse – level 3
Last week, Silicon Valley Bank failed, and it left customers in a tough spot as the government took over.
The so-called bank run happened because there was news that the bank couldn’t meet its deposit obligations. It means that it had invested the money in various things that weren’t making the money back. Typically, that’s the point where the Federal Deposit Insurance Corporation, which insures deposits up to 250,000 dollars, comes in. However, 98% of Silicon Valley Bank customers didn’t have 250,000 dollars but billions of dollars. The government announced that it would step in and secure the depositors, with US president Joe Biden saying that the US banking system was safe.
Shortly after the fall of Silicon Valley Bank, regulators closed New York-based Signature Bank, too, citing systemic risk. Experts said that these stories would continue repeating themselves because many corporations were overleveraged in dollar debt.
After the collapse, European banks lost 100 billion dollars in value in a week, and despite tough regulations that should make a similar banking failure in Europe unlikely, the contagion is accelerating.
Difficult words: tough spot (a difficult situation that isn’t easy to get out of), systemic (relating to or affecting an entire system), overleveraged (having taken too much debt to be able to pay it back), contagion (the spreading of something harmful).
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What strategies could be used to prevent systemic banking failures in the future?
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