It began with an announcement that a bank needed to raise $2.5 billion to meet a shortfall. Rumours grew and businesses and depositors rushed to the bank to remove their funds. But the bank by Friday realized that it did not have the cash available to meet the demand for withdrawals and it began limiting or refusing withdrawal. That lead to the banks closing.
Silicon Valley Bank and Signature Bank collapsed last weekend in the United States. Silicon was the second largest bank failure in the United States. Over the weekend it became apparent that the two failures would have major impacts on smaller banks throughout the United States. Early Monday morning, President Biden reassured the population that the US would step in to bail out the failed banks and would guarantee depositors funds. Smaller banks in the United States experienced runs by customers looking to withdraw funds on Monday.
Silicon Valley was not a marginal bank and had been around for 40 years with branches in many other countries.
In Canada, banks have caught the flu of mistrust as share prices dropped for all six major Canadian financial institutions. In Canada, the Office of the Superintendent of Financial Institutions (OSFI) took control of the Canadian operation of Silicon Valley Bank over the weekend. As the leading lender to technology corporations it is deemed important to Canadian Operations.
It is expected that OSFI will sell off the assets in Canada most likely to Canadian banks.
Similarly in Britain HSBC acquired the Silicon Valley Bank British assets for £1 guaranteeing the continuation of the major funding institution for technology companies in the UK.
It is expected that Silicon Valley bank will be sold to a much larger institution.
In Canada both the Financial Services Regulatory Authority of Ontario and the Canadian Deposit Insurance Corporations guarantee funding on accounts in financial institutions. In addition, Canadian banks have much stricter oversight rules. Following the 2008 financial crash stronger rules were placed on banks under the Dodd-Frank Act. Under the Trump administration in 2018 the rules were relaxed. The changes brought by the Republicans changes the terms of the Dodd-Frank Act raised the minimum that banks were considered systematically risky to $250 billion form $50 billion. Silicon Valley had $209 billion in assets.
Canadian banking regulations have not changed and depositors in Banks and Credit Unions are very well protected. We can rest comfortably, confident in our Canadian Banks and Credit Unions for the second time this century.
Former Publisher
Fort Frances Times
