(KTLA) – Remember the scene in “It’s a Wonderful Life” when there’s a run on Jimmy Stewart’s bank? That just happened in real life.
Silicon Valley Bank collapsed Friday after depositors rushed to pull funds from the tech lender amid jitters about its exposure to the fragile technology sector.
It’s the biggest bank failure since the 2008 financial crisis, putting nearly $175 billion in customer deposits under the control of the Federal Deposit Insurance Corp.
While this kind of thing doesn’t happen very often, the demise of Silicon Valley Bank serves as a lesson for all bank customers about what can happen if an institution goes under.
The good news is that, in most cases, the FDIC will cover all deposits up to $250,000. Beyond that amount, however, you’ll have to get in line to receive a portion of whatever funds are still available for disbursement. That could be the full amount you’re owed; it could be bupkis. Typically, this depends on whether the FDIC can sell the collapsed bank or can raise cash by selling off individual assets.
Deposit insurance is one big reason why banks remain relatively safe places to park money, whereas cryptocurrency exchanges generally come with no such safeguards.
In the case of crypto collapses — such as those seen in recent months — account holders can be left with nothing unless the exchange steps up with compensation. (The FDIC has nothing to do with these exchanges.)
If you didn’t bank with Silicon Valley Bank, should you worry? Probably not. While many bank stocks came under pressure Friday, most weathered the storm.
Noteworthy exceptions include First Republic Bank, which saw its shares fall by 15%, and Western Alliance Bancorporation, which saw shares plunge by 21%.
Jimmy Stewart tried to explain to customers of his Bailey Building and Loan how banks work, and how money is put to use in the community instead of sitting in a vault.
Customers of Silicon Valley Bank weren’t buying it. And that’s how bank runs occur.