Page 13 - May 2023 Issue.indd

even though the asset value has dropped from loss in case of bank failure. When because, like a spreading cancer, twitter
$10 on your statement. You don’t realize word leaked out that to satisfy the need was a catalyst.
a loss or gain on the sale of an asset to provide funds for withdraws the
In the end, the hysteria of getting money
unless you sell it. bank had to convert held to maturity
out while the getting was good was not
securities paying 1.8% to available for
Securities that are classifi ed “Available necessary. The Federal Reserve, Treasury

sale securities so they could be sold in
for sale” are required to be “marked to Department and FDIC were able to fi nd
a market where treasuries were paying

market” on financial statements and are other banks to take over operations of
over 3.8%, SVB suffered a $1.8 billion

affected by fluctuations in the market. SVB. Plus, the President announced

loss and the “run” for depositors was on.
These securities can be sold by the bank that no depositors would lose money

at any time to generate cash for a profi t Making the situation even more dire regardless of how much they had in
or a loss depending on the price at the and desperate for SVB was the fact the bank. Stockholders and unsecured
time of sale versus the price paid for the that depositors had instant access to creditors of SVB Financial were not so
security. If we use the previous example their funds through online and mobile lucky, SVB went bankrupt.
of a $100,000 10 Year treasury paying accounts and we were able to withdraw By assuring all depositors that their
2%, and it is sold when the market is funds with a tap on a keyboard or mobile funds were safe regardless of how
also at 2% then basically, we will get our device. In the old days if you wanted to much they had on deposit with SVB,
original investment of $100,00 back. But close accounts or move large amounts the $250,000 FDIC insurance limit was
as we will see in a minute, the value can of money you were required to go into a obliterated. Because SVB tailored to
be seriously affected if we are trying to branch and do it in person. Bankers had the needs of technology companies for

sell a treasury paying 2% into market time to reach out to their customers and loans and deposits and had so many
where the current yield is 4%, which is hold their hands and assure them all was accounts with balances more than the
what happened to SVB. well. With the advent of online banking $250,000 FDIC limit, President Biden
and mobile aps personal contact was no
90% of the deposits in SVB were more longer necessary and over $42 billion and the Federal Reserve and Treasury
than the $250,000 FDIC insurance in deposits left SVB in one day and Department felt it necessary to keep all
limit that protects account holders depositors whole because if they didn’t
was termed a “twitter run” on the bank

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