The interest-rate increases are intended to counteract the effects of inflation by making it more costly to borrow money in the hopes of decreasing consumer demand, which would then lead to price decreases.
With money more expensive to borrow, bank clients will typically draw more heavily from their deposits. As SVB’s client base began to draw from their deposits, SVB had to sell off investment assets to keep up with depositor repayments. As the bank struggled to keep up with depositors, even more depositors became concerned and began pulling their funds out of the bank, creating a run on SVB that led to its collapse.
Wilson indicated he does not believe the issues with SVB and Signature Bank are indicative of a much wider systemic failure in the banks, as in the case of the 2008 financial downturn, but Wilson does think that SVB’s and Signature Bank’s failure will likely stifle economic growth.
“Rather than a random or idiosyncratic shock, we view last week’s events as just one more supporting factor for our negative earnings growth outlook,” Wilson wrote fellow investors, Bloomberg reported.
Biden Says Investors ‘Safe’
President Joe Biden delivered an address on Sunday, assuring investors that the U.S. financial system is “safe” despite the collapse of SVB and the closure of Signature Bank last week.“The American people and American businesses can have confidence that their bank deposits will be there when they need them,” Biden said.
The president assured that depositors at SVB and Signature Bank were being repaid through the FDIC.
“No losses will be borne by the taxpayers,” Biden said. “Instead, the money will come from the fees that banks pay into the Deposit Insurance Fund.”
Money drawn from the Deposit Insurance Fund, which is managed by the FDIC, will be replenished through a special assessment levied on banks. The assessment serves as a sort of special insurance premium for the banks after these recent failures, enabling the FDIC to respond to future bank failures.
