The Silicon Valley Bank collapse has many people worried, and some wonder if more collapse may happen, like Signature Bank, and Credit Suisse, how this may affect investing, real estate, mortgages, and other financial institutions.

Please note: I am not a money professional and cannot give money, legal, tax or financial advice. Below, please find links to resources from professional reporting services like USA Today, NPR, and Reuters. If you need money advice, financial advice, tax advice or legal advice, please contact a professional in one of those fields. This post is just an overview of what has been happening with multiple bank collapses thanks to details from the professional reports linked below.

What Happened with Silicon Valley Bank?

One thing to understand about banks in general, is that they usually only carry a fraction of their depositors’ money in actual cash. This is called a “fractional reserve.” (Here is a definition from Investopedia.)

Silicon Valley Bank, or SVB for short, was a bank that worked a lot with tech companies.

Last Wednesday, SVB reported a $1.8 Billion tax loss and that it urgently needed to raise money to address concerns of their depositors. This lead to depositors withdrawing their money, which, due to the “fractional reserve,” the bank didn’t have in cash to provide.

The government stepped in, and stated that depositors will have access to all of their money, even including those above $250,000, which is the current maximum FDIC insured amount. The government did this because they were concerned about the effect on the US economy if many depositors lost their funds.

USA Today has a great visual on what/how this happened in an article on their website.

The next bank to have a similar issue was Signature Bank. New York State Regulators took over that bank over the weekend to prevent losses to depositors there too.

Signature Bank was bought over the weekend by New York Community Bank, and will be called Flagstar Bank. Signature’s story runs along similar lines as SVB, but had some differing circumstances. Signature Bank was a large commercial lender. Apparently, Signature got involved with cryptocurrency as well as tech lending, which appears to have raised concerns amongst their depositors after the SVB collapse. NPR had a good explanation in an article on their website about Signature’s collapse.

Another bank with issues over the weekend was Credit Suisse, which is actually a Swiss Bank, but was affected by the fallout of the US banks. Credit Suisse had been dealing with a few scandals in the past few years, and the collapse of SVB triggered depositors to pull their funds. Credit Suisse’s failure could affect the Global Economy, so UBS stepped in to buy it. Here is an NPR article about Credit Suisse.

Then there is First Republic Bank, which is in turmoil, but has gotten an influx of money from larger banks recently, according to a Reuters report on March 20, 2023. Reuters also reports some other banks are starting a recovery this Monday after downturns at the end of last week.

How did we get here?

Economists say that the large interest rate hikes to address inflation have knocked down the value of bank assets like mortgage-backed securities and government bonds. (Refer back to “fractional reserve,” where the other portion of the money a bank has in deposits may be.)

In a nutshell, Economists say that inflation and rising interest rates have affected banks’ holdings.

What does this mean for the future?

It isn’t clear.

What has been interesting to see, at least at the end of last week, is that mortgage interest rates were falling, which was positive news for many potential homebuyers.

One Economist said to Bloomberg Television to be prepared for a “bumpy ride.” Bloomberg has a very in-depth article on what is happening and what to look for in the coming days, especially as the Federal Reserve prepares to meet starting Tuesday, March 21, 2023.

What does this mean for the general Baltimore homebuyer? Talk to your mortgage lender about your potential mortgage and how these bank issues could possibly affect you. Keep an eye on interest rates, and the Fed meeting, and keep in touch with your mortgage and real estate professionals.

If you are considering buying a home in Baltimore, and need a professional to talk to, please contact me. I would love to work with you and refer you to one of my trusted mortgage professionals who understand more about the banking world and how things may or may not affect you as a homebuyer.