Global banking stocks rallied in the market on Friday after US regulators cracked down on the Silicon Valley bank over possible contagion from America’s biggest banking failure since the 2008 financial crisis.
US authorities swooped in and seized the assets of SVB, a major lender to American startups since the 1980s, after running out of deposits it was no longer possible for the medium-sized bank to survive on its own.
Little known to the general public, SVB specialized in startup funding and has become the 16th largest US bank by assets: at the end of 2022, it will have $209 billion in assets and approximately $175.4 billion in deposits Was.
Its demise not only represented the largest bank failure since Washington Mutual in 2008, but also the second largest ever for a retail bank in the United States.
In response to the sudden collapse, Treasury Secretary Janet Yellen called an emergency meeting of top US banking regulators.
A Treasury statement said, “Secretary Yellen expressed full confidence in banking regulators to take appropriate action in response and noted that the banking system remains resilient and that regulators have the wherewithal to address this type of incident.” effective tools.”
Based in the shadow of the world’s biggest tech companies, SVB’s woes have raised fears that more banks could face doom as high inflation and rising interest rates squeeze vulnerable lenders.
In front of the SVB headquarters on a rainy day in Santa Clara, California, panicked customers huddled in small groups and wondered how they might get their money out as news of the government seizure spread.
One customer, dressed in a T-shirt and sweatpants, said on condition of anonymity that he used the bank for payroll at his startup.
“It’s not a good situation. In fact a lot of the top tier (venture capital firms) have a lot of exposure here,” he said, adding that he was concerned for his employees.
crisis measures
European banking giants were similarly kept in the red, with Deutsche Bank down 10 per cent at one stage, a day after the four biggest US banks saw a massive $52 billion drop in market value following signs of trouble at SVBs.
But on Wall Street on Friday, shares in heavyweights Bank of America, Wells Fargo and Citibank seesawed, after Yellen told a congressional panel that she was “monitoring” some of the banks.
Soon after came news that California’s Department of Financial Protection and Innovation (DFPI) had shut down SVB and appointed the Washington-based Federal Deposit Insurance Corporation to take it over.
The crisis measure protects customers with deposits up to $250,000 and significantly buys time to find a potential buyer for whatever is left of the embattled Silicon Valley lender.
CNBC reported Friday that SVB was in talks with potential buyers after efforts to resolve the crisis on its own failed.
“Today’s debate is whether the SVB issues are SVB issues or the start of a larger issue for the banking sector,” Patrick O’Hare of Briefing.com said in a note.
“There seems to be an allowance for not having a company-specific problem or at least a weak systemic problem in the stock market.”
Trading in SVB was halted on Friday after the bank saw more than 60 percent of its value wiped off before the shutdown, following disclosure it had lost $1.8 billion in the sale of securities in an effort to raise funds.
Investors fear other banks could face similar losses as they try to raise cash amid steadily rising interest rates as the central bank moves aggressively to tame decades-high inflation. are increasing.
“We’ll have to see how this story develops, but there’s always something tricky during or after a Fed hiking cycle,” Deutsche Bank analysts said in a note.
“Is this another mini-falter on this front or the start of something bigger? It’s hard to tell, but I’d be stunned if this boom-and-bust cycle didn’t cause more casualties.”
US President Joe Biden on Friday approved an emergency declaration for the state, clearing the way for federal aid to help local agencies.
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(This story has not been edited by News18 staff and is published from a syndicated news agency feed)