Mon. Jul 15th, 2024

SVB bank bankruptcy: authorities want to extinguish it

By b0oua Mar 23, 2024
News

For the purpose of avoiding any potential systemic risk, the American authorities made the announcement that they would guarantee the deposits of SVB; nonetheless, this did not reassure the stock markets.

The banking industry is currently experiencing a pervasive sense of panic. On Sunday, the United States Treasury, the Federal Reserve, and the United States Deposit Insurance Agency made the announcement that they would permit customers of the bankrupt Silicon Valley Bank to withdraw all of their deposits. This decision was made after the bank closed on Friday.

The failure of SVB, which had assets worth $210 billion and was the sixteenth largest institution in the United States, was the worst bank failure that has occurred since the Great Financial Crisis of 2008.

A situation that poses a short-term threat to a large number of American businesses and that has the potential to expand to other countries throughout the world. The British branch of the SVB was acquired by HSBC after it was sold.

In an effort to reassure both the American people and the financial markets, the president gave the assurance, “We will do whatever is necessary.” Both the bank and the Democrats are being criticized by aspirants for the Republican presidential nomination.

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During his speech on the morning of Monday, March 13, Joe Biden used a tone that was reminiscent of Mario Draghi, the president of the European Central Bank, when he made a vow in the summer of 2012 to do “whatever it takes” to save the euro.

“We’ll do whatever is needed,” the President of the United States of America informed the audience in a speech that was delivered at the White House. He did not take any questions after the speech. In the wake of the unexpected failure of Silicon Valley Bank, which specializes in venture capital and has assets of 210 billion dollars, the goal was to calm the American people and the financial markets by assuring them that their bank savings would be safe.

As a response to this collapse, which was the largest since the financial crisis of 2008, the president sought to play hardball with the bank and another institution that specializes in cryptocurrency, Signature, which is situated in New York and has assets worth 118 billion dollars.

“The management of these banks will be fired,” stated Vice President Joe Biden, adding that “investors in the banks will not be protected.” They intentionally took a risk, and when that risk did not pay off, individuals who invested their money lost their money. That is the way that capitalism operates.

The individual continued by saying, “In my administration, no one is above the law.” He was adamant about locating the individuals who were involved for the incident.

All of this forceful rhetoric was used with the intention of making it abundantly obvious that this would not be a rerun of the financial crisis that occurred in 2008, when the banks were bailed out and no bank executives ended up in jail, with the exception of Bernie Madoff, whose fraudulent scheme had a catastrophic failure.

There is still a crisis going on at this time. The actions taken by the Federal Reserve have not been successful in preventing the decline of regional banks in the stock market. As a result, their trading was halted throughout the session, and they experienced a loss of more than 12% on average. The wealth management bank First Republic, which is located in San Francisco, experienced a decline of 62% at the end of the day, despite the fact that it had received liquidity from the Federal Reserve and JP Morgan.

After that came PacWest (California) and Western Alliance Bank (Arizona), both of which experienced a decline of 45%, and Zions (Utah), which experienced a decline of 26%. There was a decline of more than 11% even at Schwab, which is a low-cost online broker.

The data for inflation, which are scheduled to be announced on Tuesday morning, are the focus of everyone’s attention. Due to the fact that this would undoubtedly make the bank’s problems much worse, nobody expects that the Federal Reserve will be able to raise interest rates from 4.5 percent to 5 percent by the time its meeting on March 22 concludes.

In the event that the figure is poor, the central bank will find itself in a predicament where it must choose between its mission of stabilizing the financial sector and its purpose of stabilizing prices.

In the wake of the unexpected collapse of Silicon Valley Bank on Friday, venture capitalists and executives in the technology industry are frantically trying to make sense of the situation and estimate the potential consequences of the event.

Silicon Valley Bank, which has been the most prominent banking institution for Silicon Valley technology entrepreneurs for the previous four decades, was shut down by federal regulators in the United States, according to a statement released by the Federal Deposit Insurance Corporation (FDIC) on Friday. With the fall of SVB, the banking industry has seen its most significant failure since the global economic crisis of 2008.

Many venture capitalists and executives in the technology industry have expressed their dismay to CNBC, with some of them seeing parallels between the situation at SVB and that of Lehman Brothers, which filed for bankruptcy in 2008. As they were addressing issues that could potentially have an impact on their companies and employees, a significant number of the investors and executives asked to remain anonymous.

When SVB revealed on Wednesday that it would be financing $500 million from venture firm broad Atlantic while also dumping holdings worth approximately $21 billion at a loss of $1.8 billion, the broad consensus is that the company did a terrible job of communicating with its customers. SVB’s announcement that it is soliciting money while at the same time essentially declaring that everything is “fine” seems to spark people’s recollections of Lehman Brothers, who they remember acting similarly at the time. This was said by one venture capitalist.

“So, unfortunately, they repeated mistakes throughout history, and anyone who lived through that time period said, ‘Hey, maybe they’re not fine; we were told that the last time,'” the venture capitalist remarked.

Even as late as Thursday evening, SVB made an effort to allay concerns that the company was not in a sound financial position.

In one email that SVB sent to a customer, a copy of which CNBC obtained, the bank characterized the rumors about its problems as “buzz about SVB in the markets” and attempted to reassure the customer that it “launched a series of strategic actions to strengthen our financial position, enhance profitability and improve financial flexibility now and in the future.”

In the email that was sent to entrepreneurs, the bank stated that “business as usual” at SVB was the case. Towards the end of the email, it was stated that “In addition, we have a forty-year history of successfully navigating both bear and bull markets and have developed leading risk mitigation capabilities to ensure our long-term financial health.”

Another venture capitalist made the statement that a representative from SVB called their company on Thursday in an attempt to allay their concerns; nonetheless, the chief financial officer of the company “didn’t feel that it was reassuring, to say the least.”

One chief executive officer of a technology company, on the other hand, expressed compassion for the bank’s predicament and posed the following question: “What message will ever comfort you that your money is safe while other people are informing you that there is a fraud? Due to the fact that it is not a messaging application, there is no message. It’s a situation similar to the prisoner’s dilemma… At that same moment, everyone is required to make an effort to imagine what the actions of the other people are going to be.

A spokesperson from SVB responded to CNBC’s request for comment by referring them to the release made by the FDIC and including the following statement: “The FDIC will share additional information when it is available.”

In order for their portfolio companies to be able to pay their employees on time the following week, a number of venture capitalists rapidly instructed their companies to transfer money from Silicon Valley Bank to other institutions, such as Merrill Lynch, First Republic, and JP Morgan.

An executive from an artificial intelligence firm stated that the chief financial officer of the company responded quickly to the problem and that the company had sufficient funds to pay its employees on schedule. Despite this, the CEO has a bad taste in their mouth because of the failure of SVB. He stated that the failure of the bank is “unnecessary hysteria.”

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