Collapse of Silicon Valley Bank in the United States (The Full Story)
Collapse of Silicon Valley Bank in the United States (The Full Story)
Collapse of Silicon Valley Bank in the United States (The Full Story)
Silicon Valley Banking Group, which owns Silicon Valley Bank (Silicon Valley Bank SVB), has been closed by California banking regulators, in the greatest financial meltdown since 2008.
Because of its exposure to a financial liquidity crisis, the bank was unable to pay interest on deposits, resulting in the sale of an investment portfolio and the offering of shares.
On Monday, Silicon Valley Bank will close its doors for the last time, and holders of insured deposits will be able to recover their money up to a maximum of $250,000.
The Silicon Valley Banking Story from the Beginning
From January 2020 to June 2022, Silicon Valley Bank experienced huge deposit inflation from customers. Most of Silicon Valley Bank’s clients are emerging technology entrepreneurs.
The value of deposits in Silicon Valley Bank, Silicon Valley Bank, reached its peak by mid-2022, when it amounted to approximately $ 210 billion, and the bank was investing these funds in long-term US bonds.
The Silicon Valley Bank used to offer high interest rates to depositors, as one of the tools to attract liquidity to it, but what happened later marked the end of the bank’s journey.
In the second half of 2022, and with the US Federal Reserve continuing to raise interest rates from March 2022 until today, deposits from Silicon Valley Bank left, for their owners to invest in short-term bonds.
Silicon Valley Bank is facing a liquidity crisis
In front of these large withdrawals from deposits, the bank found itself facing a liquidity crisis represented in its inability to continue paying interest on the remaining deposits, amid a slowdown in bank lending due to high interest rates globally.
The bank could no longer afford to withdraw more deposits from customers, a development that came in conjunction with the collapse of the “Silvergate” cryptocurrency bank in the US market last week.
Silicon Valley Bank was forced to sell a portfolio of bonds worth $21 billion, in which it lost nearly $1.8 billion, and offered shares worth $2.25 billion, with the aim of providing liquidity.
And at dawn on Friday, Moody’s credit rating agency issued a report in which it downgraded the bank’s credit rating, which resulted in what is called a bank “Bank Run”, that is, depositors rushed to withdraw their money.
And last Friday, the regulators announced the suspension of trading in the stock due to its collapse by 60% on Thursday, and by a decline of 24% in pre-market trading on Friday.
The closing of Silicon Valley Bank and its aftermath
This was followed by the regulators announcing the closure of the bank, and transferring its guardianship to the Federal Deposit Insurance Corporation, which will dispose of its assets.
Today, Monday, depositors will have an opportunity to obtain their money up to a maximum of $ 250,000, and the remaining amounts will receive bonds, which will be paid to them when the assets are liquidated.
It is noteworthy that US President Joe Biden pledged to hold accountable those responsible for the bankruptcy of Silicon Valley Bank and a second financial institution, Signature Bank, and assured Americans that their deposits were safe.
“I am deeply committed to holding those responsible for this mess to account and continuing our efforts to strengthen oversight and regulation of the big banks, so we never find ourselves in this position again,” Biden said in a statement.
“The American people and American companies can be confident that their bank deposits will be there when they need them,” the president added, in remarks also posted on Twitter.
