The sudden end of Silicon Valley Bank (SVB), which was shut down by US authorities this Friday, has sent panic into the banking sector, with investors wondering about the consequences of the biggest US bank failure since 2008.
The bank has been unable to withstand massive withdrawals of capital from its clients, mainly technology players, and its latest efforts to raise new cash have been unsuccessful. The US authorities then took control of the institution and handed over its management to the Federal Deposit Insurance Corporation (FDIC).
Treasury Secretary Janet Yellen called several financial sector regulators to review the situation, expressing her “full confidence” in their ability to take appropriate action, adding that the banking sector remains “resilient.”
Little known to the general public, SVB had specialized in finance start-ups and was the 16th largest bank in the US by assets: at the end of 2022, it had $209 billion in assets and approximately $175.4 billion in deposits.
Its collapse represents not only the largest failure since Washington Mutual in 2008, but also the second largest retail bank failure in the US.
Outside the bank’s headquarters in Santa Clara, some nervous customers wondered Friday how they might get their money back, with some trying to see what was going on through the glass of the closed doors.
At the door, an FDIC document said they could, as of Monday, raise up to $250,000.
In markets, the panic move began on Thursday after SVB said it would seek to raise capital quickly to deal with high withdrawals from its customers, losing $1.8 billion on the sale of a portfolio of financial assets .
The announcement surprised investors and revived fears about the stability of the banking sector as a whole, especially with the Fed’s rapid rate hike, which has reduced the value of bonds in its investment portfolios and raised interest rates that carry the debt.
The four largest US banks lost $52 billion in the stock market on Thursday, and after that, Asian and European banks also fell.
In Paris, Société Générale lost 4.49%, BNP Paribas 3.82% and Crédit Agricole 2.48%. Elsewhere, Germany’s Deutsche Bank fell 7.35%, Britain’s Barclays 4.09% and Switzerland’s UBS 4.53%.
“As is often the case in finance, problems never come from where you expect them,” recalls Alexander Yokum of the CFRA office. “Many observers have wondered about the debt piling up on credit cards or buying office space. A “bank run”, a chain reaction that starts with mass withdrawals from customers, was not expected,” he told AFP.
Not to mention that these difficulties coincided with the announcement, on Wednesday night, of the liquidation of Silvergate Bank, an institution with a strong presence in digital currencies.
Stephen Innes, an analyst at Asset Management, wanted to reassure, in an analytical note, considering the risk of “a capital or liquidity event among the big banks” to be “weak”.
Following the economic and financial crisis of 2008/2009 and the bankruptcy of the North American bank Lehman Brothers, banks have to provide increased soundness guarantees to national and European regulatory authorities.
For Morgan Stanley analysts, “the funding pressures that SVB has faced are very particular and should not be considered the norm for other regional banks.”