The recent collapses of Silicon Valley Bank and Signature Bank sparked widespread concerns about whether their customers would be able to make payroll and whether the instability would spread to other banks around the country. Here are several lessons employers can learn from the situation to be prepared should additional banks fail.
On March 9, customers began emptying their accounts in runs on Silicon Valley Bank in Santa Clara, Calif., and Signature Bank in New York City. On March 10, Silicon Valley Bank failed, and the Federal Deposit Insurance Corp. (FDIC) took ownership of it. On March 12, the FDIC also took over Signature.
The Federal Reserve, the U.S. Treasury Department and the FDIC jointly announced that depositors would have access to all their insured and uninsured money, starting March 13. The FDIC invoked a systemic risk exception, which allowed the U.S. government to pay back uninsured depositors to prevent financial instability nationwide.
Many Silicon Valley Bank customers pulled their money out when they realized the bank was heavily concentrating its long-term investments in bonds, and the value of its older bonds was falling in comparison to bonds purchased at higher interest rates, said Kayla Dreyer, an attorney with Brownstein Hyatt Farber Schreck in Denver.
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