#310 The collapse of Silicon Valley Bank shocked U


#310 The collapse of Silicon Valley Bank shocked U

According to a report on the US "Wall Street Journal" website on March 10, Silicon Valley Bank, a lending institution that mainly serves technology companies, collapsed on the 10th after a run led to the failure of Silicon Valley Bank's plan to raise new funds. It was the second largest bank failure in U.S. history.

The Federal Deposit Insurance Corporation (FDIC) said it established a new entity called Santa Clara Deposit Insurance National Bank through which it would take over Silicon Valley Bank. The FDIC regulator said all Silicon Valley Bank deposits have been transferred to the new bank.

The FDIC said insured depositors will get their money back no later than the morning of the 13th.

Depositors whose deposits exceed the insured limit will receive a certificate from the bankruptcy receiver for their uninsured balance. This means that businesses with large deposits at Silicon Valley Bank are unlikely to get their money anytime soon.

Silicon Valley Bank is the 16th largest bank in the United States, with about $209 billion in assets as of Dec. 31, the Fed said. The bank is the largest bank to fail since the near collapse of the financial system in 2008, second only to Washington Mutual, which collapsed during the financial crisis.

Silicon Valley Bank parent company Silicon Valley Bank Financial Group has scrambled to find a buyer after canceling a planned $2.25 billion stock sale. But regulators don't want to wait.

The California Financial Protection and Innovation Authority closed the bank on the 10th and placed it under the control of the FDIC.

The report pointed out that Silicon Valley Bank mainly serves an isolated ecosystem composed of start-ups and their investors. The bank's deposits have swelled with the tech industry boom, rising 86% to $189 billion in 2021 and peaking at $198 billion a quarter later. The bank spends large chunks of its deposits buying U.S. Treasuries and other government-backed bonds.

The tech industry took a hit after the Federal Reserve began raising interest rates last year to curb inflation. As a result, startups are withdrawing money deposited at Silicon Valley Bank faster than the bank expected.

The stagnation in new investment means that new money is not flowing into the bank.

At the same time, rising interest rates have also reduced the value of Silicon Valley Bank’s massive bond portfolio, the report said. The bank needs new funding.

Silicon Valley Bank hired Goldman Sachs Group Inc earlier this week to conduct a private stock sale and planned to wait until the deal was completed to avoid announcing it so as not to panic investors, according to people familiar with the matter.

Moody's Investors Service notified Silicon Valley Bank of its plans to downgrade the bank's credit rating, the person said. As a rule, Moody's will notify the issuer of securities 24 hours in advance if it wants to adjust its credit rating.

Silicon Valley Bank executives feared the downgrade would hurt the company more than the stock sale, people familiar with the deal said. They hurriedly found private equity firm General Atlantic Investment Group, finalized an agreement to sell $500 million in common shares to the latter, and announced the sale plan after the stock market closed on the 8th. Moody's downgraded the bank later in the day.

After the market opened on the 9th, Silicon Valley Bank’s stock price plummeted. The sharp fluctuations in stock prices alarmed the bank's customers, who began withdrawing money from the bank.

Silicon Valley Bank CEO Greg Becker tried to reassure customers on the phone on the 9th, telling them that although the bank had suffered losses, its financial situation remained stable. This didn't work. Venture capital investors advised startups to pull money out of the bank to prevent losses on deposits above the $250,000 limit insured by the FDIC. At the end of 2022, the bank had more than $151 billion in deposits above that cap.

Reports say Silicon Valley Bank's troubles are dragging down the entire industry. Investors sold off the stocks of large and small banks one after another on the 9th. The market value of the four major U.S. banks alone shrank by US$52 billion. The stock prices of these banking giants rebounded on the 10th, but the stock prices of many smaller banks continued to fall. Some banks' shares were suspended from trading due to volatility.

Investors are worried about banks in similar situations to Silicon Valley Bank.

The share price of First Republic Bank, which mainly caters to businesses and wealthy individuals, has fallen by approximately 30% since the 8th.

Shares of Pacific Western Bank have fallen 54% over the past two days. More than two-thirds of the bank's lending portfolio is related to real estate, with a sizeable portion lent to venture capital firms.

According to an Associated Press report on March 10, on the 10th, Wall Street fell into panic and the stock market plummeted. After the largest bank failure in the United States in the past 15 years, many people are worried that financial institutions will collapse under the pressure of rising interest rates.

The S&P 500 fell 1.4%. The index fell despite a highly anticipated report on the 10th showing that worker wage growth is slowing and other signals that Wall Street hoped to see cooling inflationary pressures.

The Dow Jones Industrial Average fell 1.1%. The Nasdaq Composite fell 1.8%.

Among the sectors with the largest declines were financials. Shares of companies in the industry plunged for a second day in a row.

Analysts say the collapse of Silicon Valley Bank is a relatively rare event. However, the incident still raised concerns about the possibility of a wider banking crisis.

In a report from Bank of America Global Research, some strategists cited a "march crash atmosphere." The "struggle" of the stock market on the 10th took place in this atmosphere.

Reuters reported on March 10 that the selling wave of U.S. bank stocks spread to Europe on the 10th. Shares of some of Europe's biggest banks suffered their biggest drops in nine months.

The European Stoxx Banking Index fell more than 4%. Most major bank stocks fell, with HSBC down 4.5% and Deutsche Bank down 7.9%.

Shares in UniCredit and Intesa Sanpaolo also fell sharply.

Neil Wilson, chief market analyst at Markets.com, said the Silicon Valley Bank incident could be the "straw that breaks the camel's back" for the banking industry, following concerns about rising interest rates and a fragile U.S. economy.

According to reports, the incident highlights the fragility of banks: many banks were propped up by taxpayer funds after the global financial crisis more than a decade ago. The economic fallout from that crisis and the coronavirus pandemic led central banks and governments to print massive amounts of money to prop up their economies, but they are now seeking to rein in the situation.

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