Introduction
Banks play a key role in the economy by providing financial services and
facilitating the flow of money. However, although they are closely related to the government and other
state institutions, which should reduce their likelihood of deterioration, as well as
any other business, banks are also financially sensitive which can lead to
their decay. In some cases, banks may even go bankrupt,
causing significant financial and social consequences, sometimes globally
Level. In today’s blog, we will try to clarify exactly how it comes to
bankruptcy of the bank, and how to protect yourself from it. Regardless of whether you are an individual with
savings in a bank account or an entrepreneur with a loan, this knowledge could
You will be useful in preventing the loss of your money. Of course, we’ll look at
what is the role of bitcoin and other cryptocurrencies in securing your capital, and
what are the advantages and disadvantages of bitcoin compared to traditional banks.
Source: Cointelegraph
How do banks fail?
When the government increases bond yields, which governments often do in times of high
inflation rates, this can have serious consequences for the banking sector. Banks
they often invest in bonds as a way to diversify their investments and increase
Yield. However, when bond yields increase, the value of existing
bonds (which the bank owns) in the market are falling. This can lead to large
losses to banks holding a significant percentage of their capital (including
savings funds), in bonds. In such a situation, banks can try
sell bonds at a lower price to minimize their losses. However
the sale of a larger number of bonds on the market may lead to a further fall in prices
bond, which would only make the situation worse. This is exactly what happened to two
banks in the U.S. this year. It’s about Sillicon Valley Bank and Signature Bank
banks. Fortunately for the beneficiary, the state decided to “save” these banks, and will
users get their money back, but we must be aware that this is not long-term
the solution, and that the state will not be able to pull out banks forever. In addition, the increase
Bond yields can raise interest rates, which is the case in today’s
time given that this is one of the policies that governments use to
Reduced inflation. This interest rate negatively affects loan demand,
which is the main source of earnings for most banks, and this further reduces them
profitability of business. If the situation becomes too serious and the banks do not
they manage to disburse the requested funds of the beneficiary, they may face bankruptcy. In the
such a scenario, which we can expect in the coming period due to
raising interest rates, banks would be forced to sell their assets in order to
They would cover their debts and settle their creditors.
Source: Cointelegraph
Depositors' funds
When the bank fails, it is customary for part of the funds to be paid to the owners,
but it depends on a number of factors, including the rules and laws in the country where
The bank is located. In many countries there is a deposit insurance that guarantees
return ing part or all of the deposit to the owners of the deposit in the event of a failure
banks. In the United States for example, Federal Deposit Insurance
The Corporation (FDIC) insures deposits of up to $250,000 per deposit holder.
On the other hand, in the European Union (EU), each Member State must establish
deposit insurance scheme to ensure that deposit holders will be
protected in case the bank fails. Minimum requirements for deposit protection
they are established at EU level. It is customary for owners of deposits in the EU
guarantees a refund of up to 100,000 euros per deposit holder and bank.
This means that if the owner of the deposit has less than 100,000 euros in the bank account
which failed, they will be able to get back the entire amount of their money. So, insured
you up to 100,000 euros. If the bankruptcy of the bank occurs due to the financial crisis,
there is a good chance that the state will intervene in the rescue of the bank, and that the owners will
more than 100,000 euros in the case of the EU.
Source: Cointelegraph
Sillicon Valley and Signature Bank
Sillicon Valley Bank closed, i.e. went bankrupt, in March 2023.
years. The bank was closed for two reasons, the first was a decline in the value of investments
these banks (including government bonds). The second reason was the users.
banks who demanded their money back, and the bank did not have it at the time
himself. This is just one of five hundred and fifty banks in the U.S. that have failed since
beginning of 2001. years. This is the bank’s biggest bankruptcy since 2008.
Washington Mutual went bankrupt in the last great recession. Sillicon Valley
The bank was the sixteenth largest bank in the United States, with $209 billion in total
asset values in December 2022. years.
Signature Bank closed only two days later, on March 12th. March 2023 whence users withdrew large sums of money in fear of bankruptcy similar to that of Sillicon Valley Bank. We can see how a bank’s bankruptcy can cause a chain reaction of decay of others. Such an event in which users they try to extract their funds from the bank in fear of decay is better known by the English name “Bank Run”. Right behind Sillicon Valley Bank this is the second The biggest one that has failed since 2008. In 2001, the Federal Government Agency (FDIC) Deposit Insurance Corporation) decided to “save” these banks, and return the funds because these banks were “Too big to fail”, i.e. so important for financial system that the government could not allow bankruptcy due to seriousness the economic consequences that this would have left.
Signature Bank closed only two days later, on March 12th. March 2023 whence users withdrew large sums of money in fear of bankruptcy similar to that of Sillicon Valley Bank. We can see how a bank’s bankruptcy can cause a chain reaction of decay of others. Such an event in which users they try to extract their funds from the bank in fear of decay is better known by the English name “Bank Run”. Right behind Sillicon Valley Bank this is the second The biggest one that has failed since 2008. In 2001, the Federal Government Agency (FDIC) Deposit Insurance Corporation) decided to “save” these banks, and return the funds because these banks were “Too big to fail”, i.e. so important for financial system that the government could not allow bankruptcy due to seriousness the economic consequences that this would have left.
Answer
The solution to this problem is very simple, the creation of a bank that would for every
the deposited euro held the same euro instead of investing it in different financial
instruments that are considered low-risk but still contain risk. Of course
There is a problem with this solution, and that is that there is no bank that is willing to
give up the additional profits generated by investing capital. This is also the reason
Why doesn’t a bank like this exist yet? But, as always, there is an alternative, and
That alternative is Bitcoin. Digital assets where you have access to your money
just you. In times of bank failure , Bitcoin proves to be the best
alternative, but the biggest problem is still too large price fluctuations in
for short periods of time. But this problem is also getting smaller given that.
that the data indicate smaller price fluctuations, i.e. increasing stability and
continuous growth. That’s why cryptocurrency sends cryptocurrencies directly to yours.
Wallet, where only you have access to your money. This carries some risks (if
lose keys you lost access to your money), but also advantages (it is impossible
someone else loses your money). As always, we recommend that you
remove money from exchange offices and other services, and store it in your
a wallet, where only you control it.
We hope you enjoyed reading today’s blog and learned something.
new. It would be great if you could have your opinion about the current, but also the future,
the situation with banks shared with us on our social networks (Instagram,
Twitter).
