User:Amanhumanities/sandbox

Silicon Valley Bank was born four decades ago in the region known for its technical prowess. Until last the Friday, it was the 16th largest Bank in the U.S. This California-headquartered organisation was hot in demand throughout the pandemic years. Covid-19 shocks gave way to the golden period of tech companies as consumers spent big on gadgets and digital services. Many tech companies used SVB to hold the cash they used for payroll and other business expenses leading to an influx of deposits in SVB. They invested a large portion of the deposit as other banks do. But the seeds of its demise were sown when it invested in a long-dated U.S. govt. bonds backed by mortgages. Many of you know that bonds have an inverse relation with rates; when rates rise bond prices fall, so when Federal Reserve started to hike rates rapidly to combat high inflation SVB's bond portfolio started to lose significant value. As the rates were high the startups were unable to get funds so they started drawing on their deposits. SVB didn't have enough money on hand so it started selling some of its bonds at a steep loss, scaring investors and customers, it is called Bank run when customers feel that the bank is about to collapse so they start withdrawing their money. If SVB were able to hold these bonds for some years until they mature then it would recover its capital back, however, economic conditions soured over the last year the tech companies got affected and started withdrawing their deposits. Surprisingly it took just 48hrs between the time it disclosed that it had sold assets and its collapse. Signature Bank which is the second Bank to collapse after Silicon Valley Bank, is also the result of Bank run. However, Federal Reserve has assured the insured customers that their deposits are safe and they can access their accounts through a new bank that has been set up by it. Will it affect our Indian Banking system? Well, this question is oblivious, so hopefully, this matter get resolved and as per reports RBI dismisses the possibility of a silicon valley Bank-type crisis in the Indian banking system. But after such an incident, a unique type of fear takes place in the mind of people that whether their money is safe with the bank or not?