The Silicon Valley Bank crisis highlights the flaws in the fractional reserve banking system, just like the 2013 Cyprus crisis did, sending bitcoin to record highs. Reports godbole17.
requires lenders to maintain only a small portion of deposits available for withdrawal while the rest are lent out to fuel economic activity. The system assumes that at any given point, withdrawal demand will not exceed the pain threshold. The assumption, however, goes up in smoke when customer confidence tanks, as it did in SVB's case, leading to a spike in withdrawals and liquidity shortage at the bank.
In SVB's case, U.S. regulators took control of the deposits and shut down the bank on Friday. Over the weekend, the Biden administration announced that all SVB depositors could access their funds starting Monday. The announcement came as another New York-based lender, Signature Bank , also failed, a sign of fast-spreading panic in the banking sector.
"Not your keys, not your coins' is a lesson that, apparently, has to be learned again and again as history finds ways to repeat," Mike Fay, Author of Blockchain Reaction, said in the latest article at Seeking Alpha, discussing investor takeaway from the collapse of SVB and Silvergate Capital and the 2013 Cyprus banking crisis.
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