Silicon Valley Bank: Understand the 2nd largest US bankruptcy – 03/10/2023 – Market

This Friday (10), Silicon Valley Bank, which made loans to some of the biggest names in the world of technology, became the biggest bank to fail in the United States since the financial crisis of 2008.

The decision to close the bank puts nearly $175 billion in customer deposits under the control of the Federal Deposit Insurance Corp. (FDIC).

See what is known so far about this ongoing story.

Regulatory authorities take control of the bank

California’s Department of Financial Protection and Innovation closed Silicon Valley Bank on Friday, less than two days after the bank tried to convince its customers not to withdraw their money over concerns that the company’s cash reserves were running low. casualties. The regulatory institution appointed the FDIC as liquidator.

The FDIC created a new bank, the National Bank of Santa Clara, to hold the bankrupt bank’s deposits and other assets. The agency said in a statement that the new entity would start operating on Monday morning, and that checks issued by the old bank would continue to be cleared.

The bank was caught by the rise in interest rates

With the coffers full of cash from top-performing startups, Silicon Valley Bank acquired massive amounts of securities more than a year ago. Like other banks, Silicon Valley Bank held a small proportion of deposits at its disposal and invested the rest in the hope of a return.

That had been working well until the Federal Reserve (Fed), the central bank of the United States, started raising interest rates last year to fight inflation. At the same time, funding for startups began to dry up, which put many bank customers under pressure — and they began to withdraw their money. To cover these withdrawals, Silicon Valley Bank was forced to sell some of its investments at a time when their value had declined. In the surprise announcement of problems that the bank made on Wednesday, it said it had suffered losses of nearly $2 billion.

The bank’s failure is raising concerns about other banks.

Silicon Valley Bank is tiny compared to America’s biggest banks — its $209 billion in assets pales in comparison to JPMorgan Chase’s more than $3 trillion. But bank runs can happen when customers or investors panic and start withdrawing their deposits. Perhaps the most immediate concern at the end of this week was that the failure of Silicon Valley Bank would scare customers of other banks.

Shares in San Francisco-based First Republic Bank and New York-based Signature Bank fell more than 20% on Friday. But shares in some of the country’s biggest banks, including JPMorgan, Wells Fargo and Citigroup, rose on Friday after falling a day earlier.

Translation by Paulo Migliacci.