Monday, March 13, 2023
On Friday, it was announced that Silicon Valley Bank, one of the tech industry's largest banks, was closed by regulators and taken over by the Federal Deposit Insurance Corporation (FDIC). The bank's failure, the largest since the Global Financial crisis in 2008, raises concerns that other financial institutions could be at risk as rising interest rates negatively affect the banking sector.
The collapse of SVB was caused by several factors, including their client base of primarily venture-capital firms and technology startups and the timing of the Federal Reserve policy shift to raise interest rates to curb inflation. During the stock market boom of 2021, many tech start-ups were flush with cash from investors and deposited large amounts into the bank. In turn, SVB invested those deposits in government sponsored securities and longer-term US Treasuries. When the Federal Reserve began raising interest rates, the value of these securities declined right at a time when many of their large depositors needed to tap into their cash reserves to run operations. This required the bank to sell the securities at a loss and to seek additional capital to meet its obligations. Ultimately the bank’s client base of venture-capital firms, concerned with the bank’s ability to meet its obligations, advised their clients to withdraw their deposits, causing a classic bank run.
To address concerns about the SVB failure and to reassure depositors across the entire banking system, Federal Regulators led by Treasury Secretary Janet Yellen announced several measures. All SVB deposits, including both insured (up to $250,000) and uninsured will be paid in full. The Federal Reserve also announced the creation of a new Bank Term Funding Program (BTFP) making available additional funding to help assure banks have the ability to meet the needs of all their depositors. The additional funding will offer loans to qualifying banks, savings associations, credit unions and other eligible depository institutions.
We want to assure you that TrinityPoint Wealth does not have any exposure to Silicon Valley Bank. TrinityPoint Wealth is also a member of the Securities Investor Protection Corporation (SIPC) which is an important part of the overall system of investor protection in the United States. Further information on SIPC can be found at their website www.sipc.org. Additionally, our two custodians; Fidelity (www.fidelity.com) and Schwab (www.schwab.com) both offer a strong net capital position and an extensive system of internal controls to protect our clients.
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This material prepared by TrinityPoint Wealth is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Economies and markets fluctuate. Facts presented have been obtained from sources believed to be reliable. TrinityPoint Wealth, however, cannot guarantee the accuracy or completeness of such information, and certain information may have been condensed or summarized from its original source. Past performance is not an indicator of future results.