WHAT RIPPLE EFFECTS WILL SVB’S COLLAPSE GENERATE? Silicon Valley Bank Collapses: The Ghosts of 2008 Stir.
An additional worry is that the run on Silicon Valley Bank may spread. Bank runs are a mix of the rational and the rational. At their core is the mismatch at the heart of banking. Banks tend to borrow short-term (your deposit is a loan to the bank) and lend long. This creates a mismatch, which is generally fine—it’s how the banking system works. But it means that banks will only have a limited amount of funds to hand back to their depositors at any given moment. If enough of a bank’s depositors decide to ask for their money back at once, then the bank can face a liquidity crunch that could bring it down. Under the circumstances, depositors with more than $250,000 with the bank who hear of other depositors pulling out their money out, might decide (even if they believe that the bank is fundamentally sound) that they should get their excess money out—better safe than sorry—and so a bank run spreads.
Related: Silicon Valley Bank imploded in a single day. It could be just the tip of the iceberg.
Funny how these things tend to happen, now that “Milton Friedman isn’t running the show anymore.”