By Justin Malone and Peter Melahn, Staff Writers

The collapse of Silicon Valley Bank (SVB) on March 10 has continued to reverberate through the global economy, triggering financial shockwaves across the banking sector.

Formerly one of the largest lenders in the world for technology startups, SVB filed for Chapter 11 bankruptcy last week. A months-long decline in investments sent depositors into panic, and the banks stock price quickly decreased. The bank’s failure is the second largest in U.S. history and the biggest since the financial crisis of 2008.

The Federal Deposit Insurance Corporation (FDIC) seized control of the institution after customers made  sudden withdrawal requests of $42 billion, an outflow that the bank could not accommodate. The move put nearly $175 billion of customer deposits under the regulators’ control.

Banks like SVB generally only keep enough cash on hand to account for anticipated levels of withdrawal requests. The rest is typically invested, which SVB did  through government-backed mortgage bonds. 

The Federal Reserve dictates the minimum proportion of a bank’s total money supply they are required to have on hand, and this generally stays below 10%. By lowering this reserve requirement, the central bank aims to decrease the rate of lending that occurs and, in turn, cool the economy. Due to the effects of the COVID-19 pandemic, Federal Reserve requirements reached as low as 0% in 2020.

For much of 2022, SVB did not employ a Chief Risk Officer to evaluate the stability of their investments. Much of the money SVB invested was in long-term government securities, which they sold at a $1.8 billion loss last Wednesday, stoking fears among depositors.

“People are certainly fearful of any kind of signs of instability in the economy. That’s what people want right now,” Fr. James McCann, S.J., Xavier Jesuit scholar and international politics expert, said.

“It’s a time of uncertainty in so many different ways, and people want to have at least some anchors in all of that… I think that when banks in the U.S. suddenly started failing, it caused a discomfort wave of concern over the uncertain future,” he added.

The FDIC has assured depositors protected under their authority that they will receive repayment by the beginning of this week. The FDIC, as well as the Federal Reserve, hope to use their authority to create stability in light of the recent turmoil.

After the announcement of the bank’s failure, investors sold off large amounts of stocks belonging to SVB’s peers, including First Republic and Signature Bank. Both banks boasted similar investment portfolios, catered to start-up ventures and filed for bankruptcy or were bailed out last week.

These concerns provoked U.S. Treasury Secretary Janet Yellen to publicly assure investors that the banking system was resilient.

However, the implosion of SVB also sent investors’ overall confidence crumbling in parts of Europe, which sent the stocks of major European institutions like Germany’s Deutsche Bank and France’s Société Générale and BNP Paribas tumbling.

Switzerland’s Credit Suisse, — one of the largest lenders in the world — also acknowledged “material weakness” in its bookkeeping. The Saudi National Bank — its largest shareholder — announced that they could not invest more money into the bank, citing regulatory restrictions. 

These announcements came after Credit Suisse confirmed that clients had pulled out 110 billion Swiss francs ($119 billion) from the bank in the fourth quarter and posted its biggest annual loss of $7.86 billion since the 2008 financial crisis, triggering more economic worry in Europe.

Last Thursday, Credit Suisse announced they would borrow up to $54 billion from the Swiss National Bank. Three days later, rival bank USB agreed to buy Credit Suisse.

“Considering that the Swiss central bank is very large, much larger than the others that to buttress the reserve, they want to ensure the perception of stability, and that seems to have worked, at least for now,” McCann noted.