Thursday, March 23, 2023

Silicon Valley Bank crisis: Biggest US banking failure since 2008

Global banking and financial stocks took a massive hit on Friday after US-based commercial lender SVB Financial Group was shuttered by US regulators, following an aggressive decline in its stock that led to a market loss of over $80 billion.
With this, Silicon Valley Bank became the largest US bank to fail since the 2008 financial crisis and its sudden collapse stranded billions of dollars belonging to companies, investors and depositors.
The SVB crisis unfolded in just 48 hours, following the bank’s announcement that it was planning to raise funds worth more than $2 billion to plug gaps in its balance sheet. This led to widespread panic among its clients and depositors and also triggered a massive selloff. As panic grew among its investors and depositors, SVB was forced to shelve its fundraising plan, but the damage was already done. The embattled tech and startups-focused lender was closed by California regulators on Friday, and it has been put under the control of the US Federal Deposit Insurance Corporation (FDIC).
The overnight shock came after SVB’s stock experienced another sharp 60 per cent decline in premarket trade, after panicked depositors rushed to withdraw funds. The sudden collapse of Silicon Valley Bank has created a bloodbath in the startup industry and banking stocks in the US and other major markets in the world.
The SVB Financial Group was also looking to sell itself after its failed fundraising attempt, but to no avail as deposits moved out “very quickly”. As the crisis unfolded, the group even told its employees to work from home till further notice.
Shortly after, the FDIC confirmed that SVB was closed by the California Department of Financial Protection and Innovation, and that it was appointed as the receiver. It may be noted that SVB is the first FDIC-insured bank to fail in more than two years.
The move by California state regulators to take possession of the lender (SVB), and appoint the Federal Deposit Insurance Corp. receiver underscores the impact that the US’s rapid interest-rate increase is having on smaller lenders. SVB is the second regional lender to fold this week after Silvergate Capital Corp. announced it was voluntarily liquidating its bank, spurring a broader selloff in bank stocks.


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