SANTA CLARA, Calif. (AFP) – US regulators pulled the plug on the Silicon Valley bank on Friday in a stunning move that sent global banking shares into turmoil as markets plunged into America’s worst collapse since the 2008 financial crisis. Were worried about possible contagion from the big banking failure.
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 failure for a retail bank in the United States.
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.
People walk past a Silicon Valley Bank sign at the company’s headquarters in Santa Clara, California, Friday, March 10, 2023. The height of the 2008 financial crisis. The FDIC ordered the closure of Silicon Valley Bank and immediately took possession of all deposits at the bank on Friday. (AP Photo/Jeff Chiu)
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 shares in heavyweights Bank of America, Wells Fargo and Citibank seesawed on Wall Street on Friday, after US Treasury Secretary Janet Yellen expressed “concern” about the situation and said she was “monitoring” some 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.
Patrick O’Hare of Briefing.com said, “Today’s debate is whether the SVB issues are SVB issues or the start of a bigger issue for the banking sector.”
“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 closure, following disclosure it had lost $1.8 billion in the sale of securities in an effort to raise funds.
Investors fear other banks could suffer similar losses as they try to raise cash amid steadily rising interest rates, with the central bank moving aggressively to tame decades-high inflation. have been
“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.
