Silicon Valley Bank’s Failure Shows Why We Need to Expand Public Banking
Silicon Valley Bank’s collapse was no aberration: hundreds of private banks in the US have failed since the Great Recession. For a more stable financial system that actually meets ordinary people’s needs, we need to expand public banking.
The SVB Private logo is displayed outside of a Silicon Valley Bank branch in Santa Monica, California on March 20, 2023. (Patrick T. Fallon / AFP via Getty Images)
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One of the great philosopher-artists of the 2000s and 2010s (though maybe not so much in recent years) once said, “No one man should have all that power,” and this nugget of wisdom has been ringing in my head over the past two weeks. In a Slack chat among prominent VCs and startup execs, Silicon Valley venture capitalist Peter Thiel orchestrated the beginnings of a bank run against one of the most influential banks and the financial backbone of the Bay Area tech scene, Silicon Valley Bank (SVB), ultimately bringing the bank to its knees within days.
What happened with Silicon Valley Bank? Because banks don’t keep all their deposits on hand — deposits are used to provide loans or to buy various securities like bonds — they rely on depositors not all coming for their bags at once. But occasionally, a wave of withdrawals leads to banks panicking and liquidating their assets to cover newly withdrawn deposits — sparking further hysteria as everyone races to get their money out. Then down goes the bank, sending shockwaves across the economy.
