Silicon Valley Bank collapsed suddenly and now investors are worried if it will cause a broader banking meltdown. However, the US government has stepped in to guarantee customer deposits. This event has created ripple effects across the global financial market. A regional bank called Signature Bank also got closed down, and its deposits were guaranteed by the US federal government.

US President Joe Biden addressed the nation, assuring that our banking system is safe, and they will do whatever necessary to ensure the same. Silicon Valley Bank was the 16th largest commercial bank in America, providing banking services to nearly half of all US venture-backed technology and life science companies. The bank’s assets and deposits tripled in recent years, with a global headcount more than doubling. Silicon Valley Bank failed due to several years of investment in US government bonds during the era of near-zero interest rates.

The Fed’s hiking spree sent borrowing costs higher, forcing companies to draw down on deposits held by Silicon Valley Bank. The bank’s problems were triggered on Wednesday when it announced that it had sold securities at a loss and would sell new shares to plug the hole in its finances. This caused panic among customers who withdrew their money in large numbers, triggering a bank run. US regulators have guaranteed all Silicon Valley Bank customers’ deposits to prevent more bank runs and to help tech companies continue to pay staff and fund their operations.

This intervention does not amount to a bailout, so investors in the company’s stock and bonds will not be protected. There are already some signs of stress at other banks, but analysts believe that US and European banks have much stronger financial buffers now than during the global financial crisis.