The banking industry, government regulators, and investors alike are still processing the March 10 collapse of SVB Financial, the parent company of Silicon Valley Bank (SVB). It was the second-largest bank failure in U.S. history, with $175 billion in customer deposits on the line. 

But this crisis had one unique (and worrying) feature: Just 6% of those deposits fell within the $250,000 deposit insurance limit mandated by the Federal Deposit Insurance Corporation (FDIC). Most of SVB's customers were technology companies, investors, and high-net-worth individuals, which meant the majority of them faced the prospect of a total loss.

Thanks to prudent regulations that prevent banks like SVB from using customer funds to make risky investments, there actually wasn't an asset shortfall at all -- in other words, the bank was in a position to cover all deposits, it just had to liquidate its investment portfolios (it had an estimated $209 billion in assets at the time of failure).

Continue reading

Source Fool.com