Bank Failures: Keeping Money Safe

On March 11, 2023, the US President Joe Biden was seen reassuring Americans that their money in banks is safe and the American banking system is strong.

- Priya Kapoor

This was following the news of the collapse of Silicon Valley Bank (SVB) and Signature Bank. The banks were shut down by the US regulator. Before being closed, SVB Bank was the 16th largest lender. It had $209 billion in total assets, while Signature Bank had $110 billion as of December 2022.

WHAT WENT WRONG ?

SVB invested in debt like the US treasuries and mortgagebacked securities, but as the US Federal Reserve began to increase interest rates to contain inflation, this reduced returns for banks and the value of SVB’s investments fell. Amidst venture capital money drying up, clients rushed to withdraw funds, leading SVB to sell assets which created $1.8 billion in losses. The incident spooked the customers of Signature Bank as well who rushed to withdrew large sum of deposits. The run led to its failure.

MANY INDIAN START-UPS AFFECTED

The collapse didn’t just affect American depositors, but also many Indian start-ups. Hundreds of Indian startups with millions of dollars in their accounts found themselves stuck. The fear and panic reflected in the share prices too. The shares of the mobile gaming company Nazara Technologies plunged 7 percent on the day it informed stock exchange that the two of its subsidiaries together had more than $7.75 million in balances at the failed bank. However, the company now heaves a sigh of relief after getting the amount back in full. “SVB was a very reliable bank and the current situation took us by surprise. However, we have got our full money back, and we have parked it at another bank in the US,” says Nitish Mittersain, Founder, Nazara Technologies

WHY DID START-UPS PARK FUNDS WITH SVB ?