Why Banks Are Collapsing (DO THIS ASAP)
Published: 2023-03-10
Status:
Available
|
Analyzed
Published: 2023-03-10
Status:
Available
|
Analyzed
Predictions from this Video
Incorrect: 0
Prediction
Topic
Status
The speaker intends to provide actionable advice on how individuals can protect themselves from potential banking system vulnerabilities.
"And then finally what you could do about this to make sure you're best protected"
Pending
The current fractional reserve banking system, where banks only hold 10% of customer deposits, could be a systemic risk if a large number of customers withdraw funds simultaneously.
"Banks currently operate on what's called fractional reserve banking. This means that banks are required to keep at least 10 percent of their customers money available at all times for withdrawals."
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Silicon Valley Bank's investment of $100 billion in long-term, low-yield bonds was a failed bet against rapid interest rate hikes by the Federal Reserve, creating a dangerous position for the bank.
"Silicon Valley bank took roughly a hundred billion dollars and invested that into government-backed bonds with a significant portion of that locked away for three to four years at an interest rate of just one point seven nine percent. Essentially this meant that Silicon Valley bank took a massive bet that the Federal Reserve was not going to raise interest rates as fast as they did and when they turned out to be wrong that put them in a very dangerous position."
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Startups relying on Silicon Valley Bank could face financial collapse due to a combination of their bank's frozen assets in low-yield bonds and increased withdrawal demands.
"that left them in a situation where they locked too much of their money away in one specific asset that yielded too low of a return and that occurred at the exact same time their customers began withdrawing more money than they anticipated."
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A significant majority (97.3%) of Silicon Valley Bank's deposits are uninsured by the FDIC, and the future of this money is uncertain.
"97.3 percent of their money is not FDIC insured and it's not clear exactly what's going to happen to all of that money."
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Customers with uninsured deposits at Silicon Valley Bank may face a lengthy bankruptcy process (several years) with no guarantee of recovering all their funds.
"typically in cases where deposits exceed the FDIC limit losses are recovered in a bankruptcy court when assets are sold off to pay their creditors but his bank rate explains that process could take several years to complete and more than likely their customers are not going to receive all of their money back from what they started with."
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The failure of Silicon Valley Bank is predicted to be crippling for businesses that banked there, given the $342 billion in customer funds held by the institution.
"this is going to be crippling to every single business that banks with Silicon Valley Bank especially since they currently hold more than 342 billion dollars worth of customer funds"
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Most startups banking with Silicon Valley Bank will likely struggle to survive, facing options such as desperate fundraising, significant downsizing, or bankruptcy, due to the limited FDIC coverage and frozen assets.
"I would venture to say that most of them cannot just consider that everything from payroll company expenditures and all of their overheads could be held in One bank and 250 000 could be a drop in the buck pocket for a company who had saved significantly more to make it through a time of slower growth there's really no way out of this with the exception of trying to raise cash as desperately as possible in a panic at a discount downsizing significantly or going under which is something that no one thought would happen just a week ago"
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It is possible, though unlikely, that other banks could experience similar failures to Silicon Valley Bank.
"So that then of course begs the question could the same thing happen to your bank the answer is it's possible but it's unlikely"
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Larger financial institutions are better insulated from risks similar to those that caused Silicon Valley Bank's failure, as the exposure constitutes a smaller portion of their balance sheets.
"larger institutions that are also exposed to these risks too but the exposure tends to be a very small part of their balance sheet so even if they experience the same deposit outflows they're more insulated"
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The speaker advocates for higher FDIC insurance limits for business accounts to cover operational expenses, payroll, and overhead for companies that support numerous employees.
"I think the business accounts should have access to significantly higher limits since after all they have operational expenses payroll and overhead to meet not just as an individual but for an entire company that also supports tens or even thousands of employees"
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The speaker proposes that FDIC insurance limits should be adjusted to be a percentage of the deposited amount, rather than a fixed cap.
"it would make way more sense for the FDIC limit to be based on a percentage of what that person deposits"
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The future of Silicon Valley Bank remains uncertain, with possibilities ranging from acquisition and government intervention to prevent mass job losses and company failures, or a lengthy bankruptcy process for its customers.
"as far as what happens next is really anybody's guess it's still unclear if it's possible for another bank to swoop in and buy them up or if Silicon Valley Bank is deemed systemically too big to fail while the government steps in to prevent what could potentially be tens of thousands of employees losing their jobs and companies going under or if they're going to be forced to go through bankruptcy with 97 of their customers waiting to see what's going to happen"
Pending