The US authorities took control of Silicon Valley Bank, a bank specializing in venture capital, at the end of last week. The big banks seem protected for now, but Wall Street fears the fallout on regional institutions.
Chronicles of an unforeseen disaster
On Wednesday, Silicon Valley Bank (SVB) was still a strong California banking institution, ranking 16th in the United States by assets.
But the events that followed changed everything in just 48 hours.
California regulators shut down the cash-strapped institution on Friday as shockwaves rocked financial markets.
US Treasury Secretary Janet Yellen said in a CBS interview on Sunday that she “wanted to avoid contagion” to other parts of the banking system, while ruling out a public bailout of the institution.
The Federal Depositors Guarantee Fund (FDIC) is now responsible for the liquidation of the bank specializing in servicing Silicon Valley startups.
US authorities confirmed the auction on Sunday, aiming to find a buyer before Asian markets open on Monday.
48 hours of descent into hell
Massive deposit withdrawals of $42 billion over two days have bloodied banking institutions.
Venture capital-focused Silicon Valley Bank (SVB) was administratively shut down by the California branch of the US deposit insurance agency, the Federal Deposit Insurance Corporation (FDIC), on the morning of Friday, March 10, after his clients massively withdrew their funds on Thursday March 9 and Friday March 10.
This case threatens in the short term many venture capital companies, especially in the areas of San Francisco and Boston where the bank was founded.
Governments are looking for solutions
The solution found by the American public authorities to avoid a financial panic following the bankruptcy of the Silicon Valley Bank (SVB) is astonishing: no bailout by the taxpayers, but the deposits of all the bank’s customers will be guaranteed, ) y including beyond more than $250,000 (approximately €234,000).
The number of companies that have successfully withdrawn funds is unknown, but it is likely that many start-ups that have raised funds and then spent them over time had deposits well in excess of the guaranteed $250,000.
On top of that, the U.S. central bank, the Federal Reserve, will open a $25 billion line of credit to fund institutions that may be subject to a bank run.
“The Fed will make additional funds available to enable banks to meet the needs of all their depositors,” the central bank said in a statement on Sunday evening. This action will strengthen the ability of the banking system to protect deposits and ensure the continued supply of money and credit to the economy. »
Fallout to the White House
The importance of this case on a national scale threatens the American banking system which is disturbed by the monetary tightening ordered by the Federal Reserve.
US President Joe Biden promised on Sunday that those responsible for the collapse of Silicon Valley Bank (SVB) and the financial institution Signature Bank will be “held accountable”.
The President of the United States will speak on the subject on Monday.
“I will comment on how we will maintain a resilient banking system to protect our historic economic recovery,” the statement read.
