Crypto Has Just Been Reminded About the Importance of Banks

• Crypto has just been reminded about the importance of banks.

Although most people had a terrible year in 2020, the tech industry had a boom. Consumers were spending more time on their phones and computers, conferencing software was becoming more useful, and the industry was more active than nearly any other area of the economy thanks to fresh funding and a recruiting frenzy.

One of the top banks in the technology industry, Silicon Valley Bank (SVB), had $60 billion in customer deposits in the first quarter of 2020 and $200 billion by the same period in 2022. The happy days wouldn’t last forever.

The bank made investments in government bonds and mortgage-backed securities, but when the Federal Reserve hiked interest rates to fight increasing inflation, the bank incurred severe losses. To reduce losses, Silicon Valley Bank sold off assets. Yet, clients withdrew $42 billion in deposits after it revealed the need to raise $2.25 billion in capital. The bank was shut down the following day by regulators. The GFC in 2008 caused the largest bank failure in the United States to date.

However, the American government declared on Sunday that depositors would have access to their money starting on Monday. Fears of a larger catastrophe would be allayed by the full protection of all depositors. The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the U.S. Treasury have all declared that the taxpayer won’t suffer any losses as a result of the change.

In the meantime, a formal bid has been submitted to the UK Government by a group of investors led by the Bank of London for SVB’s U.K. business. The British government has been developing a strategy to assist U.K. tech companies impacted by SVB’s demise.

Silicon Valley Bank has already sparked rifts in the sector, despite not being as exposed to cryptocurrencies as Silverware.