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U.S. Treasury Secretary Janet Yellen addressed the Senate Finance Committee Thursday and said Ameica's banking industry is "sound."
VisionsofAmerica/Joe Sohm/Getty Images
Don’t panic. There’s no need to withdraw some cash and bury it in the backyard or sew it into the mattress. Your money is safe in the bank.
After the collapse of two regional banks in California and New York, customers hurried to get their money in their hands, but a financial expert says "the industry is stable."
Peter Bush, who holds a doctorate and is an associate professor of finance at Northwood University, says a few banks are "under-capitalized" and that the U.S. is moving toward a "universal banking system."
"We’ve been on a path since 2008 where smaller regional banks are getting absorbed or they're just disappearing, so we’re moving more towards what I like to call a ‘universal banking system,’" Bush said. "There isn’t a reason for panic. There are certain banks that are regionalized that could have some liquidity issues."
Concern over the banking industry stems from Silicon Valley Bank's failure after comments made by the CEO caused panic, and followed the announcement that Signature Bank out of New York also failed.
U.S. Treasury Secretary Janet Yellen appeared before the Senate Finance Committee Thursday and told members America’s banking industry "remains sound" and bank customers "can feel confident" in regard to their deposits, according to the Associated Press.
Bush said Silicon Valley Bank’s CEO Greg Becker did the wrong thing by revealing information in a world where word on social media spreads quickly.
CNN reports Becker and other Silicon Valley Bank executives "hoped to raise $2.25 billion in capital as well as $21 billion in asset sales that sparked a $1.8 billion loss." In short, Becker announced his bank lost $1.8 billion and that efforts were underway make up for it.
This was last Wednesday, March 8, and as word got around on social media it worried bank customers, most especially those in the tech industry. Silicon Valley Bank is a prominent lender to tech startups. Thus people began heading to the bank to withdraw their money.
Reportedly, $42 billion was withdrawn from the bank last Thursday, March 9.
"I think what we’re seeing — a very interesting sidebar to this — is this could be the first social media-driven bank run that we’ve seen," Bush said. "In 2008 it was too early in the game. There weren’t enough people on these platforms. 2008 was a very different animal."
It became a moment where information transparency wasn’t really best to commit to without sharing options for assistance from the Federal Deposit Insurance Corp.
"If you say something like you have some ‘liquidity concerns’ as a CEO of a bank, or that you are making transactions to buttress your liquidity — if you say that in the media these days, that is a problem," Bush said.
The FDIC said Silicon Valley Bank customers would have access to their money by Monday, March 13, and regulators announced Sunday, March 12, uninsured deposits over $250,000 would be covered, according to the Wall Street Journal.
In the aftermath, a class action lawsuit against Silicon Valley Bank, Becker and its leaders was filed in federal court Monday. Additionally, Becker has been removed as a board member of the Federal Reserve Bank in San Francisco.
"At the end of the day, I don’t think there’s a major danger unless one of the two big banks (like JPMorgan Chase or Bank of America) goes down, and there’s no evidence that anything like that is even close," Bush said.
