New Delhi: The Silicon Valley bank was shut down by the US authorities and billions of dollars are stranded. It has become the biggest bank failure since the 2008 financial crisis. Global market has started showing its effect with major indices of the world witnessing huge outflow of money by investors globally.
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Razer CEO Min-Liang Tan proposed to Twitter to short SVB to buy Silicon Valley Bank and become a digital bank. In response to that tweet, Elon Musk said that he is open to the idea.
I’m open to the idea – Elon Musk (@elonmusk) March 11, 2023
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causes of silicon valley crisis
As the Fed has been raising interest rates in the United States to rein in inflation, it has dampened investors’ morale and risk appetite and they have started withdrawing money to meet their liquidity needs. This caused the Silicon Valley bank to look for ways to meet the sudden demand for liquidity from customers.
Therefore, the bank sold most of its bond portfolio of US Treasuries at a loss. Subsequently, it announced that it would sell $2.25 billion of common equity and preferred convertible stock to fill its funding gap. This prompted investors to sell the shares and prices fell heavily. They collapsed losing over 60-70% of their value in the session.
Finally, the Federal Deposit Insurance Corporation (FDIC) announced that SVB had been closed and placed under its receivership. The FDIC said it would seek to sell SVB’s assets and that future dividends could be paid to uninsured depositors.