Silicon Valley Bank collapse: Financial crisis worries following the failure of a bank used by the US tech industry

March 13, 2023

The run on Silicon Valley Bank (SVB), the biggest failure of a financial organization since the height of the financial crisis more than ten years ago, prompted US regulators to move quickly to seize the bank’s assets on Friday.

The 16th biggest bank in the nation, Silicon Valley, failed this week as a result of a rush by depositors to quickly withdraw their funds, mostly technology workers and venture capital-backed businesses.

The bank’s last efforts to raise additional funds were unsuccessful because it was unable to handle the bank’s customers’ massive withdrawals.

As a result, US authorities formally took control of the bank and gave its administration to the US agency in charge of deposit insurance, the Federal Deposit Insurance Corporation (FDIC).

SVB, a little-known bank with a focus on startup funding, was one of the biggest banks in the US by total assets at the end of 2022 with $209 billion (€196 billion) in assets and roughly $175.4 billion (€164.5 billion) in deposits.

In addition to being the second-largest collapse of a retail bank in the US, its demise marks the largest bank failure since Washington Mutual in 2008.

To discuss the situation, US Treasury Secretary Janet Yellen gathered a number of financial sector regulators on Friday. She emphasized that the banking industry was still “resilient” and that she had “full faith” in their ability to take the necessary action.

A few anxious clients stood in front of the bank’s Santa Clara, California, offices on Friday, wondering how they could get access to their money and some speculating about what was happening behind the closed glass doors.

An FDIC document stated on the front that they could begin withdrawing up to $250,000 (or €235,000) on Monday.

“Not excellent at all. Many of the larger [venture investors] have substantial down payments here “One client who wished to remain anonymous said. As a new employer, he paid his staff through the bank and is concerned about them.

The panic movement on the markets began on Thursday after SVB announced that it was trying to rapidly raise capital to handle the massive customer withdrawals, but had failed and had sold for $21 billion (€19.7 billion) of financial securities, losing $1.8 billion (€1.7 billion).

On Thursday, the four biggest US banks lost $52 billion (€49 billion) on the stock market, which caused Asian and then European institutions to collapse in their wake.
BNP Paribas dropped 3.82 percent, Crédit Agricole 2.48 percent, and Société Générale 4.49 percent in Paris. The British bank Barclays fell 4.09 percent, the German bank Deutsche Bank 7.35 percent, and the Switzerland UBS 4.53 percent.

The major banks on Wall Street bounced back on Friday following the loss of the previous day: JPMorgan Chase lost 2.54%, while Bank of America and Citigroup lost less than 1%.

On the other hand, mid-sized banks or those that cater to a specific clientele experienced greater turmoil, with First Republic, for instance, falling by almost 15%, and Signature Bank, which is close to the cryptocurrency scene, falling by 23%.

As is frequently the case in finance, the issue wasn’t where we anticipated it to be, according to CFRA’s Alexander Yokum.
“Many observers were puzzled by the debt that was accumulating on credit cards or in the workplace real estate market. No one anticipated a bank run, “massive client withdrawals set off a series of events, he told AFP.

The danger of “a capital or liquidity incident among major banks,” according to Stephen Innes, an analyst at SPI Asset Management, is comfortingly estimated as “low” in a note.

Banks have been required to provide their national and European regulators with strengthened evidence of solidity since the financial crisis of 2008/2009 and the failure of the American bank Lehman Brothers.

For instance, they have to argue for a greater minimum capital requirement to cover losses.

For Morgan Stanley analysts, “the funding pressures confronting the SVB are very unique” and other banks are not experiencing a “liquidity crunch”.

Source: Euronews
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