The Aftershock That Will Follow Silicon Valley Bank

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While headlines of bank failures and bailouts consume the media, few are contemplating the economic and financial aftershocks that will follow.

Hockey great Wayne Gretzky famously commented, "I skate to where the puck is going to be, not where it has been." Let's take his advice and consider where the economic puck will be tomorrow.

The silent bank run

The banking sector was experiencing a silent bank run well before Silicon Valley Bank made the headlines.

Unlike the Great Depression, where blocks-long lines of people were clamoring for their money, this bank run is quiet and calm. For starters, online banking makes moving money from one bank to another financial institution simple and instantaneous. Second, unlike the Depression, which happened suddenly, this bank run has been happening for a year.

Despite much higher interest rates, banks were not increasing interest rates for most of their depositors. Consequently, customers gradually moved money from banks to higher-yielding options outside the banking sector. This bank run is not necessarily about the risks of holding money at a bank, as it was in the Depression, but about the opportunity to earn higher yields elsewhere.