Silicon Valley Bank (SVB) closes in biggest banking failure since global financial crisis

Bank branches open Monday to allow customers withdraw up to $250K
Silicon Valley Bank (SVB) closes in biggest banking failure since global financial crisis

The crisis at Silicon Valley Bank (SVB), which was shut down by U.S. authorities on Friday, has created panic in the US banking sector, with markets questioning the consequences of the biggest US bank bankruptcy since the 2008 financial crisis.

The bank is no longer able to meet the massive withdrawals of its customers, who are particularly active in technology, and its attempts to raise capital quickly have not succeeded.

US authorities announced Friday that they had shut down Silicon Valley Bank and entrusted deposit management to the Federal Deposit Insurance Corporation of the United States.

US Treasury Secretary Janet Yellen summoned financial regulators on Friday to discuss the situation, stressing that she had “full confidence” in their ability to “take appropriate measures” and that the banking system was “robust and resilient”.

“Secretary Yellen expressed full confidence that banking regulators will take appropriate action in response,” the Treasury Department said Friday in a statement.

The statement also stated that it “noted that the banking system remains resilient and that regulators have effective tools to address this type of event.”

Read: Biban 2023 witnesses inking of SAR10 bn worth of deals

The US Federal Deposit Insurance Corporation plans to reopen the bank’s 17 California and Massachusetts-based branches on Monday and allow customers to withdraw up to $250,000 in the short term, the amount the institution typically guarantees.

The federal institution explained that the California Financial Protection and Innovation Authority officially acquired the bank, citing “insufficient liquidity and insolvency.

At the end of 2022, the bank had assets of $209 billion and deposits of $175.4 billion.

Little known to the public, Silicon Valley Bank was the sixteenth US bank in terms of assets.

SVB’s closure represents not only the largest bank bankruptcy since Washington Mutual Savings Bank closed in 2008 but also the second-largest retail bank bankruptcy in the United States.

In front of the bank’s headquarters in Santa Clara on Friday, several customers stood asking how they could withdraw their money. A paper from the California Financial Protection and Innovation Authority hung on the door stating that as of Monday, they could withdraw $250,000.

In the markets, the panic began Thursday after SVB announced that it was seeking to raise capital quickly to counter massive withdrawals by its clients, as well as a loss of $1.8 billion from the sale of securities.

The announcement surprised investors and revived concerns about the resilience of the banking sector as a whole, especially with rapidly rising interest rates leading to a fall in the value of bonds in their portfolios, AFP reported.

The four largest US banks lost $52 billion on stock exchanges on Thursday, followed by Asian and European banks.

In Paris, Société Générale lost 4.49 percent, BNP Paribas 3.82 percent and Credit Agricole 2.48 percent.

Elsewhere in Europe, Germany’s Deutsche Bank lost 7.35 percent, Britain’s Barclays 4.09 percent, and Switzerland’s UBS 4.53 percent.

On Wall Street, major banks rebounded on Friday after falling the previous day. JPMorgan Chase shares rose 2.3 percent midway through trading as Bank of America and Citigroup moved closer to balance.

Local banks such as First Republic and Signature Bank saw further strikes with their respective shares down 23 percent.

Another US group faces challenges. Silvergate’s cryptocurrency parent company announced Wednesday that the institution would be liquidated.

Since the 2008-2009 financial crisis and the bankruptcy of US bank Lehman Brothers, banks have had to provide strong guarantees to the national and European market regulators.

The results of the last such test at the end of July 2021 revealed that financial institutions are able to withstand a serious economic crisis without serious damage.

For more on banking and finance, click here.

The stories on our website are intended for informational purposes only. Those with finance, investment, tax or legal content are not to be taken as financial advice or recommendation. Refer to our full disclaimer policy here.