SVB closed down after a hysterical panic of venture capitalists lead to it’s collapse. Some concerns resulting from the fallout are that startups may be unable to pay employees and venture investors could end up struggling to raise the proper funds.
According to Joe Craig, who is also the chair of UCCS’ Department of Economics, people who have accounts with mainstream banks don’t need to worry too much about these shutdowns.
“It’s very unlikely that mainstream banks are going to fail or that there’s going to be a kind of cascading effect as a result of this,” Craig said in an interview with KOAA. “Especially with the administration already jumping on board and not allowing it to go any further and saying that they will honor all the deposits that were made in that bank.”
Craig said that the short term effects of these collapses are negligible, and deposits are likely covered by various protections. He said that if anyone has $250,000 or less sitting in their bank account, the Federal Deposit Insurance Corporation (FDIC) will federally insure those deposits. Federally insuring deposits is how the FDIC protects individuals money in the case of bank failure.
Ripple effects will continue to affect smaller banks, but those worried about their investments can rest easy — unless they involve cryptocurrency.
Craig believes that the shutdowns of Silicon Valley Bank and Signature Bank are bad omens for cryptocurrency investors and communities.
“Most economists don’t think of crypto as a currency (it doesn’t fulfill the role of currency in that it doesn’t hold stable value, and it’s not easy to use as a medium of exchange) but rather as a commodity,” Craig wrote via email. “In this light, the banks that have bet heavily on this may put themselves in a precarious place if people lose their faith in it.”
Craig noted that he is unsure if more collapses like this will cascade into the future.
“I think it’s certainly more likely, as a common thread is lack of confidence,” Craig said. “Any time customers lose faith and start pulling out it can spiral quickly. And with multiple hits like this it’s likely the public has certainly lost some confidence.”
Students looking to learn more about these bank closures or cryptocurrency can contact Joe Craig at [email protected].
Photo from techcrunch.com.