America is well known for its financial industry and the banks within the country are known to make risky choices with the money of their depositors. Sometimes this happens even with the largest banks, just like we saw with SVB, what once was the 16th largest bank in America.
A bank known to be the place where tech companies and venture capital firms had their funds with. One of their clients is the famous entrepreneur and investor, Peter Thiel.
Mr/ Thiel realised that SVB was in a poor financial situation when the organisation disclosed that they were trying to fundraise money to cover a $1.6 billion loss due to a selloff of their bond and treasury holdings.
With this information in hand, Mr.Thiel informed his portfolio companies within Founders Fund to withdraw funds from SVB which initiated a bank run that led to the quick downfall of the company.
Since then SVB has been bailed out by the government due to fears of other banks suffering the same downfall.
Politicians in trouble
Politicians like California Gov. Gavin Newsom was affected by SVB’s financial crisis. His blind trust which has the governor’s companies who bank with SVB.
Not only the governor is tied to the bank but his wife as well who according to other outlets received $100,000 in funds for a donation to her non profit organisation.
With the government intervention being so fast many are criticising how quickly the government intervened.
Congress will look into the bank collapse
Senate Majority Leader Chuck Schumer said that the US congress will look into the circumstances behind the collapse of SVB.
This is not the first time that congress has looked into a situation like this, SVB is the second largest bank collapse in US history with the first one being Washington Mutual Bank in 2008.
Since the financial crisis of 2008 the government had passed the Dodd Frank Act which created more oversight on banks to be more regulated but some of the regulations were rolled back by the Trump administration.
Author: Amaury Abreu
