On Friday, Silicon Valley Bank (SVB) was shut down by US regulators, in what appears to be one of the biggest financial downfalls since the 2008 global crisis. Following the shut down, the bank’s assets were frozen. The collapse is the second largest bank collapse in United States history.
The bank, which is located in Santa Clara, California, was shut down by the regulatory body of California, the California Department of Financial Protection and Innovation. The department chose the Federal Deposit Insurance Corporation (FDIC) as the receiver for all insured deposits of SVB. The FDIC reported that Silicon Valley Bank has total assets worth $209 billion and total deposits worth $175.4 billion as of December 31, 2022.
SVB shut down after the bank revealed losses of up to $2 billion
On Wednesday, SBV reported that it had suffered losses of up to $2 billion. The bank specialized in venture capital and was one of the top competitors in the start-up ecosystem.
According to an article in The New York Times, the bank was caught in higher interest rates. SVB had invested in a large number of bonds a little more than a year ago, hoping to get a high return on the investment.
But as the federal reserve bumped up the fed rate to curb inflation, startup companies began to withdraw their money due to a tough corporate market. In order to meet the withdrawal demands of its customers, SBV had to sell its investments at a time when the market value of those investments had declined.
In a statement, the FDIC said that to protect the insured depositories, it has created the Deposit Insurance National Bank of Santa Clara (DINB). After the US regulators shut down Silicon Valley Bank and named the FDIC as the receiver, the FDIC transferred all the insured deposits to DINB.
SVB shutdown leads to a downturn across major global markets
The collapse of SVB has created a domino effect, leading to a downturn in the stock market across the global economy.
NDTV reported that there was a steep decrease in markets across Europe and Asia. London stocks slid 1.7 percent, wherein HSBC declined 4.7 percent, Standard Chartered decreased 4.4 percent, Barclays slid 4.1 percent, and Lloyds fell 3.5 percent.
In Europe, Paris and Frankfurt dropped 1.3 percent, Deutsche Bank fell 7.4 percent, and Societe Generale declined 4.5 percent.
Another anticipated outcome of the shut down was that it would make customers of other banks anxious to pull out their deposits. Though few of the relatively smaller banks saw a decrease in their share prices, the Silicon Valley Bank shut down had little to no effect on larger banking systems such as JP Morgan, Wells Fargo, Morgan Stanley, etc.
Politicians and entrepreneurs had mixed reactions to the bank’s collapse. While some see it as a huge step down for the startup ecosystem and a warning sign of a looming recession, others argue that it was the bank’s own fault due to a series of misjudged investment decisions by the senior officials of the bank.