LEXINGTON, Ky. (LEX 18) — California’s Silicon Valley Bank and New York's Signature Bank both collapsed in a matter of days. Quint Tatro is the managing director at Joule — a financial planning firm in Lexington. He explains that banks collapsing isn't uncommon, but not at this scale.
"So usually these are really small obscure type banks that maybe aren't doing much business at all and they can’t meet the capital requirements. This event was much, much larger than we have seen in a very, very long time and now it seems to be having a cascading effect onto other banks,” says Tatro.
Silicon Valley Bank, or SVB, had a large number of small business and tech start-up clients. So, what happened? Tatro explains that the bank didn't necessarily do anything risky. He says they bought a number of treasuries that significantly dropped in value — as inflation went up.
Tatro explains, "The problem is, is that somewhere along the way, somebody caught wind of these losses, started taking their money out, and it became a domino effect, and those losses can’t be made up when money is going out the door. That's the problem here."
The FDIC stepped in and insured that customers would have access to all their funds — even exceeding the usual $250,000 insurance limit.
So, what would this mean for banking customers across the country? Quint says we could see fewer small or regional banks, as more people will go with larger more established banks. It could be more challenging for small businesses to get loans. He says small businesses should also avoid putting all their eggs in one basket, or bank, and diversify.
Tatro says, "I think that they have to have sort of a cash management strategy — which we've never had to worry about in our country for a hundred years. And now, all of a sudden we're having to talk about this and it's a real conversation I think people need to have."
