Two major banks fail in the US: this is the largest financial disaster since 2008

SVB was the largest bank to fail since the 2008 financial crisis. The bankruptcy, which occurred on March 10, roiled the global markets. Billions of dollars belonging to investors and startups and large corporations are “stuck”, reports Reuters.

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Silicon Valley Bank (SVB) is a commercial bank that provides financial services to technology, life sciences and venture capital companies. VC. Since its founding in 1983, SVB has been a pioneer in serving the unique needs of an innovative economy, and has been the 16th largest bank in America (and second in California) with approximately $209 billion in assets.

Why SVB Was So Popular

• Focus on technological and innovative economy. SVB had a deep understanding of the technology industry. They have built their business around serving the needs of tech start-ups and other innovative companies. The bank served even giants: Apple, Google and Tesla. He also had thousands of small start-ups and growing companies in his portfolio.
• Built strong relationships with venture capital firms. SVB has established itself as a key partner to the venture capital industry, providing funding and other services to early stage companies and helping to grow the startup ecosystem.
• He was the first to launch innovative financial products and services. For example, the bank was one of the first to offer venture debt financing, which provides startups with additional capital.

What happened

Due to the abundance of “free money” as a result of the zero interest rate policy (ZIRP), as well as the growth in the capitalization of technology companies, the business of SVB Bank, which serves tech startups, has tripled since 2020.

Both the bank's quotes and the volume of deposits have grown - it reached $2022 billion by the beginning of 200.

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Many entrepreneurs have felt rising inflation as demand shrinks and rounds are difficult to close.

It was then that the worst thing that could happen to the bank began. Depositors began withdrawing money from deposits. The bank has no money, as they are all in long-term bonds. There is nothing left but to start selling these same bonds at a loss (according to the bank for $1,8 billion).

Upon learning of what had happened, all other investors were also frightened and withdrew more than 20% of the deposit base in the amount of over $42 billion in a couple of days. It was then that SVB finally collapsed.

The bankruptcy of Silicon Valley Bank was the largest since Washington Mutual went bankrupt in 2008. This was a characteristic event that provoked a financial crisis that slowed down the economy for many years. The 2008 crash led to tighter regulations in the United States and beyond.

Since then, regulators have introduced stricter capital requirements for US banks, aimed at ensuring that the collapse of individual banks does not cripple the financial system and the economy as a whole.

Silicon Valley Bank's main office and all branches reopened on March 13, and all insured depositors will have full access to their insured deposits no later than the morning of March 13. But according to the Federal Deposit Insurance Corporation (FDIC), as of the end of 2022, 89% of the bank's $175 billion in deposits were uninsured, and their fate remains to be determined.

What to expect

Because the details are confidential, the FDIC is rushing to find another bank over the weekend that is ready to merge with Silicon Valley Bank, according to people familiar with the matter.

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Separately, SVB Financial, the parent company of Silicon Valley Bank, is working with investment bank Centerview Partners and law firm Sullivan & Cromwell to find buyers for its other assets, including investment bank SVB Securities, management company Boston Private and Equity Research Firm MoffettNathanson, as sources said. The sources added that these assets could attract competitors and private equity firms.

It is unclear if any buyer will come forward to buy these assets unless SVB Financial has filed for bankruptcy. Credit rating agency S&P Global Ratings said on March 10 that it expects SVB Financial to go bankrupt.

Companies such as video game maker Roblox Corp RBLX.N and streaming device maker Roku Inc (ROKU.O) have said they have hundreds of millions of dollars in bank deposits. Roku said its SVB deposits were largely uninsured, causing its shares to drop 10% in extended trading.

Tech workers, whose salaries depended on the bank, were also concerned about getting paid. SVB's San Francisco branch showed a note taped to the door inviting customers to call a toll-free number.

On March 10, SVB Financial CEO Greg Becker sent out a video message to employees in which he acknowledged the "incredibly difficult" 48 hours leading up to the bank's collapse.

US banks have lost more than $100 billion in the stock market in the past two days, and European banks have lost about $50 billion more.

U.S. lenders First Republic Bank (FRC.N) and Western Alliance (WAL.N) said on March 10 that their liquidity and deposits remain strong, seeking to reassure investors as their shares tumble. Others, such as Germany's Commerzbank (CBKG.DE), have issued rather unusual statements to reassure investors.

Will be worse

Some analysts predict that the sector will be further hit as the episode has raised concerns about hidden risks in the banking sector and its vulnerability to rising money values.

Treasury chief Janet Yellen met with banking regulators March 10 and expressed "total confidence" in their ability to respond to the situation, the Treasury Department said. The White House said on March 10 that it had confidence in US financial regulators when asked about the SVB bankruptcy.

To finance the buyout, SVB sold a $8 billion bond portfolio on March 21, consisting primarily of US Treasuries. The bank said it would sell $2,25 billion of common stock and preferred convertible shares to fill a funding hole.

By March 10, the falling stock price made it untenable to raise capital. The bank tried to consider other options, including a sale, until regulators stepped in and closed the bank. The key question now is how well the obligations of the banks affected by the problem were secured, and also what the right steps would be taken by the US government if the provision was bad.

The last FDIC insured institution to close was Almena State Bank in Kansas on October 23, 2020.

Signature Bank is the next victim of banking turmoil

State regulators closed New York's Signature Bank (SBNY.O) on March 12, the third-largest bankruptcy in U.S. banking history. Reuters.

The FDIC took control of Signature, which had $110,36 billion in assets and $88,59 billion in deposits at the end of last year, according to the New York State Department of Financial Services. All Signature Bank and Silicon Valley Bank depositors will be reinstated and "the taxpayer will not suffer any loss," the US Treasury Department and other banking regulators said in a joint statement.

Signature Bank employees apparently gathered at the company's Manhattan headquarters on March 12, ordering food from Carmine's Italian restaurant and Starbucks coffee, reporters said. People began leaving the building after the bankruptcy was declared.

Signature was a commercial bank with private client offices in New York, Connecticut, California, Nevada, and North Carolina and had nine national business lines, including commercial real estate and digital asset banking.

As of September, nearly a quarter of its deposits were in the crypto sector, but in December the bank announced that it would cut its crypto-related deposits by $8 billion.

In February, Signature Bank announced that its chief executive, Joseph DePaolo, would move to the position of senior adviser in 2023, to be succeeded by the bank's chief operating officer, Eric Howell. DePaolo has served as president and CEO since the founding of Signature in 2001.

The bank has had a long relationship with former President Donald Trump and his family. The bank provided Trump and his business with checking accounts and financed several of the family's businesses. Signature Bank cut ties with Trump in 2021 after the January 6 bloody riots on Capitol Hill and called on Trump to step down.

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In a statement, New York Gov. Kathy Hochul said she hopes the US government's actions will provide "increased confidence in the stability of our banking system."

Biden reaction

Speaking at the White House, Joe Biden tried to reassure Americans that the banking system would survive.

“Thanks to the swift actions of my administration over the past few days, Americans can have confidence in the security of the banking system,” the president said.

“Your deposits will be there when you need them. Small businesses across the country that maintain accounts with these banks can breathe easier knowing that they will be able to pay their employees and pay their bills. And their hardworking employees can breathe a sigh of relief too,” Biden assured.

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