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How failed banks impact investors

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It can be very unsettling to hear of a bank failure such as Silicon Valley Bank (SVB) last month. Investors may wonder how they should react or if they should adjust their portfolios. First, a little history lesson to put this into perspective.

Economist William Greiner.

Each bank must manage the risk of lending, investing, cash deposits and withdrawals. If any or all of those are out of balance, problems start to percolate. When you have high-risk loans, such as technology start-ups, and you are short on liquidity (more withdrawals than deposits), and the investments backing the deposits decline in value, you have a recipe for failure.

quarters. is downward pressure on bond values and concerns the bank would need to raise capital, caused some technology-focused venture capital companies to remove funds from SVB.

not covered by the $250,000 limit for FDIC insurance.

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