👉 Background: In the US, the FDIC or Federal Deposit Insurance Corporation, guarantees deposits up to $250,000 USD. The same happens here in Australia. The idea of this is to give customers comfort that their money is safe - so they don’t stash it all under a matrress.

👉 What happened: The large majority of SVB’s customers were well-funded startups with MUCH more than $250,000 USD in their bank. So imagine a customer with $10m deposited at SVB - and they could only be guaranteed $250,000.

👉 What else: If the government didn't agree to protect all customers, it was feared that other mid-sized banks in the US and globally could face similar pressure from contagion. So earlier this week, the FDIC guaranteed that each and every one of 40,000 SVB customers would be fully reimbursed their deposits.

What's the key learning?

💡Financial contagion is the spread of an economic crisis from one business, market, or region to another. Almost all markets are interconnected, so events in one market can impact other financial markets.

💡A failure of one bank like SVB could lead to a bank run on another small bank...and another...and another.

💡So the US government has jumped in quickly to reduce financial anxiety by repaying the SVB depositors in full. But investors and other stakeholders? Well, that's another story.

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