Will Silicon Valley Bank's Demise Affect Other Bank Stocks

Silicon Valley Bank has gone under. This bank was used and trusted by many companies out there including startups. Many startups had all of their money with this bank, and now they suddenly just don’t have access to that capital anymore. It’s a very big deal. The money startups use to pay employees and grow their business is just suddenly not there anymore. What’s really crazy about all this is that I can’t find anyone that saw this coming. Before Silicon Valley Bank’s stock crashed and the bank run happened, their stock was considered a buy by many stock analysts. Media personality Jim Cramer even urged his viewers to buy the stock last month. Will this affect other bank stocks?

Short-term the answer is obviously yes. I own shares in several banks, and they did not respond well to the news at all. SoFi is one of my biggest holdings, and their stock fell after the news. Their CEO, Anthony Noto, must not be too worried about it though as he bought a million dollars worth of the stock when it fell.

While any bank can have a bank run, it’s important to realize the difference between Silicon Valley Bank and other banks. Silicon Valley Bank was used by a lot of startups that had accounts with $10 million+. Most banks do not have that much money in an average account. Bank accounts with $250,000 or less are FDIC insured. If one has $250,000 or less in their account, then they really don’t have to worry if their bank goes down or not because they are insured. People lost faith in Silicon Valley Bank (for good reason) and that triggered a bank run because most accounts there were larger than $250,000 by a significant amount. People panicked to get their money out because if the bank went under their account balance over $250,000 is not insured. I don’t see why this would create a domino effect with most other banks as people with less than $250,000 in their account don’t have much of a reason to create a bank run because their accounts are insured. 

I’m not sure what the entire fallout of this bank collapse will be. A lot of businesses are affected by this, and I do expect bank stocks to continue to fall short term. I’m not very worried about the bank stocks that I own long-term though, and I would like to add more shares of these companies to my portfolio at these cheaper prices.

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