Silicon Valley Bank Collapse Sends Shockwaves Through US Financial System

SVB’s Collapse Triggers Run on Deposits
The collapse of Silicon Valley Bank, the 16th largest bank in America, has sent shockwaves through the US financial system. SVB’s demise was caused by a series of missteps, including investing in long-term bonds when interest rates were near zero. When interest rates rose, the value of these bonds plummeted, leading to a $1.8 billion after-tax loss.
On Wednesday, SVB announced its losses and the need for additional capital to address depositor concerns. The announcement triggered a sharp market reaction, leading to a loss of over $160 billion in value in 24 hours. Depositors began withdrawing their money, but SVB couldn’t fulfill its obligations because it had invested the funds in long-term bonds that were now worth much less.
FDIC Takes Over SVB and Signature Bank
On Friday, the Federal Deposit Insurance Corporation (FDIC) took over SVB to get depositors access to their money by Monday. The FDIC’s intervention was necessary because SVB’s troubles posed a systemic risk to the US financial system. Signature Bank in New York also closed on Sunday after its customers began withdrawing cash too quickly. State regulators took over the bank to stabilize the financial system.
Federal Regulators Guarantee Deposits
Before the FDIC took over, depositors could only access up to $250,000, the insurance limit for their accounts. However, several companies had well over that amount in the bank, including popular companies like Roblox and Etsy. The Federal Reserve, the Treasury Department, and the FDIC took the unusual step of guaranteeing the deposits because SVB presented a systemic risk to the US financial system.
Wall Street Ceases Trades of Regional Banks
SVB’s collapse also had a ripple effect on Wall Street, with trades of several regional banks ceasing when share values rapidly declined in early trading Monday. Shares of First Republic Bank were stopped after falling 65% in morning trading. Outside the US, Japan’s benchmark Nikkei 225 slipped about 1.2% in morning trading, and Australia’s S&P/ASX 200 shed 0.6% to 7,104.30. European markets also closed lower, with the pan-European Stoxx 600 index down 2.34%.
Conclusion
Overall, the collapse of Silicon Valley Bank has sent shockwaves through the financial industry and raised concerns about the broader economy. While regulators have acted quickly to reassure depositors, experts are warning that deeper problems may be lurking beneath the surface.