SVB CASE: HOW THE SILICON VALLEY BANK WENT BUST IN THREE DAYS

Experts compare the shock experienced by the US financial system last week with the situation of the 2008 crisis. On March 10, 2023, it became known about the bankruptcy of Silicon Valley Bank ("Silicon Valley Bank"), located in Santa Clara (California), which actively worked with high-tech startups.

The Bank lacked the necessary liquidity to carry out current operations. The sale of assets led to losses and bankruptcy. Last Wednesday, SVB carried out an additional issue of securities worth $1.75 billion. The bank's management explained this by the need to compensate for losses of a similar amount.

Investors were not satisfied with this decision, they switched to a mass sale of shares. The next day, stock quotes dropped by 60%, and on Friday the bank burst. The bank, which was in 16th place, took only three days for the fiasco.

First, the DFPI (California Department of Financial Protection and Innovation) informed the public about the insolvency of the credit institution. An order was issued transferring the bank into his possession. Then the Federal Deposit Insurance Corporation (FDIC) began to manage the bank. Considering that deposits of less than $250 thousand were insured, the organization announced plans to start paying customers from March 13.

After the collapse of Washington Mutual, which happened in 2008, the bankruptcy of SVB can be called the second largest in history. At the time the organization was declared insolvent, its assets amounted to $209 billion, while the volume of deposits was about $175.4 billion.

The influx of depositors led to a sharp increase in the rates of US government bonds in which the bank's funds were invested. At the same time, their price on the market has dropped significantly. Against the background of the news, the regulator decided on March 12 to close the New York Signature Bank, which is also experiencing financial difficulties.

The US President said that the deposits of Americans are protected. The head of the White House called for tightening the rules of the banking sector to avoid this in the future. Prior to that, similar statements were made by the US Treasury and the Fed. At the same time, the authorities made it clear that ordinary depositors will be able to get their money from the bank, but not large investors.

It is not yet clear whether the house of cards effect, which is predicted by a number of investors, will happen in the financial market, or whether the authorities will be able to cope with the situation. Silvergate collapsed last week (Rusbankrot wrote about it on March 10), now the authorities of those countries where SVB branches were located are making efforts against destabilization of the situation.

It is known that SVB mainly worked with venture capital and the high-tech market. As reported in one of the publications of the Economic Times, at least 60 technology startups in India may be affected by the collapse of the bank. The Nasdaq KBW stock index fell seriously on March 13, 2023. Shares of four credit institutions in the United States ceased circulation due to a sharp reduction in their value. World markets reacted to the situation by cheaper oil and more expensive gold.

Photo: Wikipedia