The collapse of Silicon Valley Bank has added one more deficit to the history of U.S. economic failures. The SVB bank has suffered the greatest loss in the last 15 years after the 2008 economic crisis. The Federal Reserve is all set to review the collapse of the Silicon Valley Bank.
According to experts, financial deregulations led to the 2008 economic crisis and the country might suffer a similar fate in 2023. The banking might get boring once again as the rules and regulations will stiffen up after the collapse of Silicon Valley Bank.
About Silicon Valley Bank
Silicon Valley Bank (SVB) is a forty-year-old bank headquartered in Santa Clara, United States. It is the 16th largest bank in the U.S. with most of its focus on Silicon Valley and high-risk ventures mostly consisting of startups. Nearly all U.S. venture-backed startups did business with SVB by the end of 2022.
The bank has recently fallen apart certainly due to an increase in interest rates. The collapse of Silicon Valley Bank endangers the assets valued at $200 billion before the collapse.
Story Behind the Failure
The prime cause of the collapse of Silicon Bank Valley is related to the bank taking a large portion of its customer funds and investing that into long-duration bonds. Now as per the Federal Reserve rates, which were near zero (0%-0.25%) in 2021, have now surged to 4.5%-4.75% in 2023.
Source: Trading Economics
The fluctuation in interest rates has resulted in the decline of SVB’s deposits which has led to the crash. On Wednesday, March 8, the SVB announced, it needed to raise $2.25 billion to bolster its balance sheet. It later resulted in its stock prices plunging toward the crust.
Chart showing fall in the share price of SVB in a week (since March 9) Source: Investing.com
Moreover, major investors like Silvergate have suffered substantial losses by the end of 2022. The company suffered losses in terms of crypto-related trading and FTX fraud. Ultimately, the bank suffered a crash after declining in deposits on Thursday, March 9.
On March 9, the Silicon Valley Bank had a Bank run causing $42 billion in withdrawals and a negative cash balance of $968 million. According to CNBC, some SVB customers received an email concluding that it is just a general banking regulation.
On Friday, California regulators intervened and close the SVB after the collapse. The US government has assured the bank customers that all the deposits are secure and will be refunded. The government urges to take a similar action crypto-focused Signature bank that was closed on Sunday by the New York regulators.
The government has assured that no taxpayers will suffer losses due to the collapse of Silicon Valley Bank. On Tuesday, March 14, US President Joe Biden reassured the citizens that the “banking system is safe” and your deposits will be there when they need them.
President Biden on SVB collapse: "Americans can rest assured that our banking system is safe." pic.twitter.com/9vSxWM4dJN
— Yahoo Finance (@YahooFinance) March 13, 2023