Silicon Valley Bank (Reuters)
banks
The bank is in receivership under the Federal Deposit Insurance Corporation
Silicon Valley Bank “SVB”, which is a favorite destination for American technology startups, made headlines during the two days after its collapse, leaving its customers and investors in a difficult situation.
The Silicon Valley bank, facing unusual deposit runs and a capital crisis, collapsed on Friday morning and was taken over by federal regulators.
The bank’s collapse was described as the biggest failure of an American bank since the collapse of Washington Mutual, which was considered the largest American company operating in the field of savings and lending, in September 2008, according to the “Arab Gate for Technical News.”
What is Silicon Valley Bank?
Founded in 1983, Silicon Valley Bank specializes in banking for technology startups. It has provided funding for nearly half of the technology and healthcare companies backed by US venture capital.
Many outside of Silicon Valley have not heard of the bank, even though it is among the 20 largest US commercial banks, with total assets of $209 billion at the end of last year, according to the Federal Insurance Corporation.
Why did the Silicon Valley bank collapse?
It started after the Federal Reserve raised interest rates a year ago to rein in inflation. After the Fed’s aggressive move, higher borrowing costs sapped the momentum in technology stocks that the Silicon Valley bank was benefiting from.
High interest rates have also eroded the value of long-term bonds that Silicon Valley and other banks devoured during the era of ultra-low and near-zero interest rates. The bank’s $21 billion bond portfolio was yielding an average yield of 1.79 percent.
At the same time, investment capital began to dry up, forcing start-ups to withdraw funds from the bank, so bond losses began to loom as customers withdrew their deposits.
Silicon Valley Bank (Reuters)
The Silicon Valley Bank Crisis
On Wednesday, the bank announced that it had sold a raft of securities at a loss, and that it would also sell $2.25 billion in new shares to shore up its balance sheet, sparking panic among major venture capital firms, which have reportedly advised tech startups to pull their money out of the pool. the bank.
The bank’s stock began to decline on Thursday morning and by the afternoon it was dragging other bank shares with it as investors began to fear a repeat of the financial crisis of 2007 and 2008.
By Friday morning, he had stopped trading in Silicon Valley shares and abandoned efforts to raise capital quickly or find a buyer. California regulators intervened, closing the bank and placing it in receivership under the Federal Deposit Insurance Corporation.
Fears of transmission to other banks
Despite the initial panic on Wall Street, analysts said the collapse of the Silicon Valley bank was unlikely to trigger the kind of domino effect that gripped the banking industry during the financial crisis.
“The system is as liquid and well-capitalized as ever. The banks in trouble are now far too small to pose a real threat to the broader system,” said (Mark Zandi), chief economist at (Moody’s) Moody’s.
And no later than Monday morning, all insured depositors will have full access to their insured deposits, according to the FIC. Uninsured depositors will be paid “a return in advance within the next week”.
What will happen after the bank collapse?
Other banks are unlikely to be contagious, but smaller banks disproportionately tied to cash-strapped industries like tech and cryptocurrency could be in trouble, according to Ed Moya, senior market analyst at Bank of America. Oanda.
“Everyone on Wall Street knew that the Fed’s rate hike campaign would eventually break something, and now it’s breaking small banks,” Moya said on Friday.
The FDIC typically sells the assets of a failed bank to other banks, using the proceeds to return funds to uninsured depositors.
A buyer could still emerge for Silicon Valley’s bank to bail it out.
Will Elon Musk buy Silicon Valley Bank?
Billionaire Elon Musk, whose fortune now amounts to about $180 billion, said at dawn on Saturday that he was “open to the idea” of buying the bank.
“I think Twitter should buy Silicon Valley Bank to become a digital bank,” said Min Liang Tan, co-founder and CEO of Razer, a company that sells computers and gaming hardware.
Musk, who acquired Twitter for $44 billion in late October, responded by saying, “I am open to the idea,” without giving additional context.
