Silicon Valley Bank started it all off last week and now we have three American banks who have folded and Credit Suisse has been bought by UBS in a $3.2 billion deal so they don’t go the same way.
What on earth has been happening?
If enough people worry about their bank failing and ask for their money out of the bank, it causes a “bank run”.
Banks do not hold all of their customer’s money on deposit or as cash in their safes, like they used to do. They use it to buy other assets, such as bonds. As interest rates have been increasing, these bonds have been dropping in value, meaning that the banks do not have enough money to pay back all of their customers. So when many of their customers ask for their money back, selling the bonds does not give enough money, and it causes a problem.
This is what happened to Silicon Valley Bank.
Which then caused a run on Silvergate Bank and Signature Bank. So all three banks have been shut down.
Credit Suisse was already suffering from various things that have happened over the last few years and these three banks going caused greater concern, which led to its deal with UBS.
Want a funny video to show what happened? Watch Bart cause chaos in the Simpsons by clicking here
You Need To Do This
In the UK, our bank accounts are protected by the Government up to £85,000 per person, per bank.
Make sure that you have no more than £85,000 in any one bank so that it is protected.
Remember it is £85,000 per parent bank so be careful with the subsidiaries.
