Trinitydigest

NH Business Review recently brought Gordon Simmons onto their podcast to provide his expert knowledge regarding the questions arising about the Silicon Valley banking crisis and the future of inflation in the United States. With his extensive background on the board of directors and as the CEO of Service Credit Union for over 40 years, he sheds light on why the banking crisis happened and how it relates to inflation. 

Gordon Simmons explains what could have caused the shocking collapse of the Silicon Valley Bank 

For many, the recent collapse of Silicon Valley Bank came as a shock. Venture capitalists began raising the alarm on Twitter one random day that something was off, and this whistleblowing led to the withdrawal of $42 billion in a single day, creating the untimely closure of the bank. For many, this seemed sudden and surprising, but Simmons said the signs had been there for several years.  

Simmons began by explaining the bank began growing entirely too rapidly only a few years ago. They went from $50 billion in accounts to $200 billion, and that massive increase was due to taking on young, high-tech startups. These accounts, however, were susceptible to interest rates due to the nature of their businesses. When the Fed began raising interest rates to combat inflation, many of these accounts started to withdraw.  

Although most banks insure the money of their members for up to $250k, Silicon Valley wasn’t doing this for these high-risk accounts. Anything not guaranteed is their direct responsibility. These withdrawals began to pull on their already inadequately capitalized accounts. While banks are required to have a minimum of 8% of their total account value in funds that can be withdrawn, Silicon Valley only had 6%, and at the end of 2022, they were down to 5.8%.  

With those percentages too low and interest rates driving high-risk, uninsured accounts to withdraw, the pressure began building over the course of several years. When those whistleblowers took to Twitter to warn account holders, it was all too much, and the bank collapsed.  

How Silicon Valley relates to inflation 

One of the things that ultimately led to the demise of Silicon Valley Bank was the interest rates imposed by the Fed, making their main client base leave. Although it is putting a strain on many, this increase in interest rates is an attempt to fight inflation.  

With inflation at 6% this year, many people are feeling the effects of gas and grocery costs. Although the interest rates continue to rise, inflation is beginning to fall. It was at 7.8% last year, meaning it has dropped almost 2%.  

This doesn’t mean the economy is out of trouble, however, as unemployment is going to continue to rise. Simmons predicts that interest rates are going to continue to go up, and there will be less money in circulation as people have less income to use. Stock market values will decrease as well, with people moving their money to more stable accounts like CDs that are benefitting from the rising rates.  

However, Simmons urges Americans not to be concerned. The 2008 market conditions were much worse, and most accounts are now insured. He believes that the rising interest rates will be slower and much more restrained moving forward, with the hopes that inflation will be back under control in the next few years.  

Media Contact
Contact Person: Gordon Simmons
Email: Send Email
Country: United States
Website: https://gordonsimmonsaccomplishments.com/