CINCINNATI — The remnants of the bank that kick-started the financial crisis earlier this month now has a new owner.

First Citizens Bank bought what’s left of the Silicon Valley Bank. Investors hope the move will help ease the crisis that came about when the bank didn’t have the funds to fulfill withdrawals. 

What You Need To Know

  • A few weeks ago, Silicon Valley Bank collapsed

  • Economists believe the banking crisis will lead to a credit crunch

  • This means lending standards will become tighter, making it more challenging to get a loan

  • Jones said it is important to live within your means and to not borrow money if you know you can’t afford to pay it back

“For most Americans it’s not as relevant to them because the clients of that bank were primarily businesses in the tech industry,” said University of Cincinnati Economics Professor Michael Jones. 

Jones explained the bank took the deposits from its investors and converted them into treasury bills. But when it was time to convert the money back for withdrawals, it ran into a problem. 

“When they sold them, they sold them at a loss because interests have been going up and that created a panic among those depositors,” he said. “They started to realize that maybe those funds wouldn’t be available when they needed access to them.”

A vast majority of the depositors weren’t protected by the FDIC. That’s when the Federal government decided to step in. 

“The federal government declared these banks a potential for systemic risk to the rest of the financial services sector and they back-stopped and insured that those depositors would have access to the full amount of the funds they deposited,” he said. 

Economists believe this will lead to a credit crunch. That means lending standards will become tighter, making it more challenging to get a loan. Jones said with interest rates increasing to nearly 5%, banks are concerned that people won’t be able to make the payments or are more likely to default. 

“If you have a much lower credit score or there is a history of not making your payments, then banks in this environment are going to be much less likely to loan to you,” he said. 

That’s why Jones said it is important to live within your means and to not borrow money if you know you can’t afford to pay the money bank.

“They need to be not extending themselves, not buying a house that they can’t afford, because job uncertainty is quite a bit higher now than it was just a year ago,” he said.