If you want to know a real bank run case, you can follow the Silicon Valley Bank Collapse news.
It’s the 16th largest bank in the US which serves tech-centric companies and venture capital firms.
Since SVB has assets worth more than $300 billions, its collapse will be the biggest after 2008 Lehman Brothers.
SVB collapse revealed the vulnerabilities of the fractional reserve banking system.
We realized how important the people’s confidence is over real cash, for the survivability of a bank.
Let us go through how SVB collapse actually started, and also things we can learn from it as a Bhutanese.
Silicon Valley Bank Collapse – How it All Started
SVB sold $21 billions worth of bonds at $1.8 billions loss, and announced the need of another $2.25 billions to meet clients’ withdrawals.
It’s a sign of liquidity crunch for a bank. So people and companies having deposits with the bank rushed to withdraw their money.
True as a limitation of the fractional reserve banking system, SVB doesn’t have the money.
This tanked SVB stock by 60% and a loss of more than $80 billions out of its market valuation.
Silicon Valley Bank Collapse – Withdrawal Rush
Why people rush to withdraw their money? If the bank fails, every deposit account holder can legally claim only at the max $250,000.
If a person has more than that, they’ll be gone. This is the Federal Deposit Insurance scheme in the US.
All countries have their own deposit insurances with different coverages. It’s SGD 75,000 in Singapore, Rs.500,000 in India and Nepal.
In Bhutan, it’s called as a Financial Protection Scheme and the coverage is just Nu.100,000.
Bank Collapse in Bhutan – Will it Happen Soon
It seems the US government is going to bailout SVB to protect people’s confidence over their banking system.
So, do I see a bank collapse case coming soon in Bhutan? I cannot say for sure. Will it never happen in Bhutan. Anything is possible!
Our banking system isn’t exposed so much to an international financial market.
However, if higher NPLs and commercial housing loans issues continue, our banking system might face one.
To protect our money, we must diversify our investments. We can keep our deposits with more commercial banks.
I also don’t invest all money in banking sector stocks. Check my stock portfolio and see how I invest in different sectors.
It’s your responsibility to protect your money. Government or banks or RMA, won’t care much.
