Unless you've been living under a rock in the last few weeks, you would have heard talk about Silicon Valley Bank (SVB), if not major headlines about it everywhere you look.

But for those living under a rock, SVB is a US commercial investment bank, based in California, which assisted the tech industry and venture capitalists - or riskier, start-up businesses - before it collapsed on March 10, local time.

But why does this matter and why is this collapse all over the news?

Well, according to the Economics Observatory (ECO) in England, SVB's failure represents the second-largest failure in US banking history and is certainly the biggest one since the Global Financial Crisis (GFC) in 2007-2009.

Plus, at almost the same time, the SVB-affiliated bank, Signature Bank, based in New York, also collapsed.

The SVB is now in the hands of the US government, or the Federal Deposit Insurance Corporation (FDIC), with its remaining assets frozen until further notice.

Meanwhile, the US financial disasters weren't helped by the collapse of Switzerland's second-largest bank and one of the country's oldest financial institutions, Credit Suisse, at almost the same time.

While since bought by rival Swiss bank, UBS, for US$3.2 billion, Credit Suisse's future is still uncertain and certainly, Switzerland's reputation as a steady and stable global financial hub has cracked.

Why have three banks in two countries collapsed in one month?

Aah, this is the question that everyone is now asking!

According to our research, Credit Suisse's collapse has come after many years of mismanagement issues and huge dollar losses, to say nothing of several nasty scandals.

Then, 2022 saw it suffer the biggest annual dollar loss since the GFC, in a statement revealed just last month.

As for SVB's downfall, the ECO blames the bank's "vulnerability" to such disasters on it having a "high proportion of uninsured deposits and a large proportion of deposits invested in hold-to-maturity securities".

Others in the economic world are saying the same thing.

However, this same factor is a "double-edged sword" for SVB, says a Harvard Business School professor and National Bureau of Economic Research associate.

"Commentators have rightly highlighted the additional risk that the bank bore by being so heavily concentrated in one sector: venture capital and startups," Prof Paul Gompers said.

"Less discussed are the benefits that such concentration provided... (and) it's also worth recognizing the tremendous benefits to specialization that allowed SVB to become such a force for startups."

Or, you could go wider and further, and - as with Credit Suisse - look at SVB's other issues as reasons for its failure.

One great article we read described in full how the start-up companies that SVB assisted are more often than not very happy to go it alone - until things start to go downhill.

"The spectacle is particularly ironic because a huge part of startup lore is not just accepting risk but embracing it," the article read.

"Now those noble risk-takers were demanding retroactive protection—because tech-company money was unavailable due to a totally avoidable risk."

The article writer goes on to talk of how SBV executives actively lobbied to avoid stringent regulation and failed to replace its retired chief risk officer for eight months.

"Did they understand that an entire startup monoculture patronizing one bank made a huge industry dependent on a single point of failure?" the writer adds.

Have any Australian banks ever collapsed?

Yes, the State Bank of South Australia collapsed in 1991 after being created less than a decade earlier in 1984, through a merger of the government-owned State Bank and the Savings Bank of South Australia.

The "debt-laden" State Bank of Victoria also collapsed a year earlier, with the government-owned institution sold to the Commonwealth Bank (CBA) - with the federal government in turn selling 30% of the CBA to finance the purchase.

Confusing, hey!

But apparently, the deal helped make the CBA the biggest bank in the country.

As regards the State Bank of SA, plenty of fingers were pointed at the Labor government for their handling of the situation, even after a royal commission into the bank collapse cleared both the premier, John Bannon, and the bank’s managing director, Tim Marcus Clark, from any blame or penalties.

However, a book released in August last year by University of Adelaide professor, Dr Greg McCarthy, investigates the situation further, and concludes the bank's failure was due more to it "turning its back on its community-based roots" than to the Labor government's mismanagement. 

Check out this disturbing list from the Reserve Bank of Australia (RBA) for more "financial disturbances" in Australia's history.

Oh, and in some more good news for Melbournites, this city has experienced more bank and financial crises than any other Australian city.

Are banks still safe?

Well, relatively speaking, they are.

From our research, most economic pundits are saying we should be fine due to government regulations such as the Financial Claims Scheme (FCS), introduced after the GFC in 2008, as well as the Australian Prudential Regulation Authority (APRA) protections.

In the case of the FCS, the government guarantees it will protect bank deposits of up to $250,000 if a bank collapses.

Anything over that figure though and it's probably best to move your money around to a second bank - or two.

It's also important to remember that the government won't protect your savings multiple times over for multiple accounts under the same bank, especially if you're with different banks owned by the same company.

At the same time, no bank anywhere can withstand a mass, panicked withdrawal of customer funds at the same time,

In the most basic terms, banks need such funds and the interest on customer loans, including credit cards, to stay alive.

However, Morningstar Investor notes that as further protection for the everyday Australian, our banks are subject to liquidity coverage standards to ensure they would have enough capital in case of an SVB-like ‘run on the bank’ situation.

It adds that Australian bank assets invested in tradeable securities are close to 5% of total assets, compared with 20% for overseas banks.

Plus, says Morningstar, our banks are held to regulatory standards such as interest rate risks which ensure they hold some capital in hand to withstand higher interest rates. 

Issues for Aussie banks now are their reliance on real estate - similar to that of SVB's reliance on tech start-up companies - as well as overseas funding.

As a side note: the FDIC in the US also only covers $250,000 of bank deposits.

But a major issue in and around this idea and SVB is that, according to one article we read, around 94% of its domestic deposits weren’t FDIC-insured because they were over that $250,000 maximum.

Hence, the panic and the collapse.

So, for now, it's probably a safe bet that Aussie banks won't go the way of Credit Suisse and SVB.

But if you want to keep even some of your cash buried in the garden, well, we won't stop you!

We're here to help

It's definitely been a big month for banks around the world.

But we're still here to help you with whatever home loan road you wish to take and we’d love to help you travel it!

We can find you the best home loans from more than 40 of Australia’s biggest banks and specialist lenders and we can also help you refinance your loan to help you keep more money in your pocket.

So, give us a call today at Lending Loop.