Startup-focused lender SVB Financial Group became the largest bank to fail since the 2008 financial crisis, in a sudden collapse that roiled global markets, left billions of dollars belonging to companies and investors stranded. US Treasury Secretary Janet Yellen has ruled out a bailout, according to numerous media reports.
California banking regulators closed the bank, which did business as Silicon Valley Bank, and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver for later disposition of its assets. The lender was ranked as the 16th biggest in the U.S. at the end of last year, with about $209 billion in assets. As it tried to raise capital to offset fleeing deposits, the bank lost $1.8 billion on Treasury bonds whose values were torpedoed by the Fed rate hikes.Silicon Valley Bank UK arm is set for insolvency process sparking fresh alarm, according to Reuters.
In the UK:
- Bank of England set to put UK arm of Silicon Valley Bank into a Bank Insolvency Procedure.
- Customers will receive £85,000 ($102.3k) per account, or up to £170,000 for joint accounts, from the deposit insurance scheme, while remaining assets would be managed by liquidators.
- Development comes after parent company collapsed and was taken over by US regulators on Friday.
In a press statement, Susannah Streeter, head of money and markets at investment manager Hargreaves Lansdown, said:
“It was looking inevitable that the dramatic loss of confidence in SVB would also sweep its UK arm into insolvency. The run on the US bank spooked customers banking with the British subsidiary, despite protestations that it was ringfenced from its parent. Once US regulators stepped in to ground the mothership, attempts to withdraw deposits escalated, putting the bank in a highly precarious position.
“With companies’ deposits effectively frozen on both sides of the Atlantic, and customers only set to be able to get access, in the short term, to limited insured amounts, the aftershocks will continue across the tech sector next week. Urgent talks regarding potential takeovers will be ongoing, with regulators under pressure to negotiate bail outs to avoid further damaging fall out. Forced sales of SVB bond assets could see steep losses realized by its remaining customer base, which could lead to fresh mass lay-offs and even bankruptcies.
“Smaller tech-focused banks are set for a very rocky ride as the loss of confidence widens but still the risks of contagion to the wider banking sector remain limited. Although large retail banks have been sideswiped as investors have re-assessed unrealized losses in their bond portfolios, their revenue streams are much more diverse, with large loans books and retail deposits and, with interest rates being hiked, their net interest margins have risen. Since the financial crisis banks have bigger capital ratios and have been forced to build up their buffers to prevent another shock so the prospects for wider insolvency are low. The Bank of England judged in its latest financial stability report that UK banks were sufficiently capitalized and strong enough to deal with the storms of a sharper deterioration in economic outlook.
“However, it’s clear that the rapid escalation in rates has taken the sector by surprise and the determination by the Fed to keep raising rates has brought fresh worries. Policymakers will now be monitoring this turn of events very closely, and now may be more likely to tread carefully with further rate rises, to ensure nothing else gets badly broken.”
The Jerusalem Post reported that the UK Treasury has begun canvassing startups, asking how much they have on deposit, their approximate cash burn and their access to banking facilities at SVB and beyond, two people familiar with the matter said, asking not to be identified because the information isn’t public. UK prime minister Rishi Sunak said there’s no systemic risk from the collapse. The WSJ reported that HSBC will buy Silicon Valley Bank’s UK arm for around $1.
On the global fallout: “SVB had branches in China, Denmark, Germany, India, Israel and Sweden, too. Founders are warning that the bank’s failure could wipe out startups around the world without government intervention. SVB’s joint venture in China, SPD Silicon Valley Bank Co., was seeking to calm local clients overnight by reminding them that operations have been independent and stable.” In Israel, Local SVB competitors such as Leumi Tech, Discount Tech and Poalim Hi-Tech are likely to benefit from the sudden retraction of their biggest competitor. Only hours after SVB’s crash, Leumi and Hapoalim announced that their tech branches would issue loans to cover start-ups and tech firms without access to their credit.
The Wall Street Journal reported that Circle’s USDC stablecoin broke its peg with the dollar: “A stablecoin at the heart of cryptocurrency trading dropped sharply after backers revealed $3.3 billion is stuck at the collapsed Silicon Valley Bank…investors cashed out over $2 billion worth of USD Coin, knocking the dollar-pegged token below 87 cents.” We took a closer look at this here.
The New York Department of Financial Services took possession of Signature Bank in order to protect depositors, with the FDIC appointed as receiver of the bank. Signature had $110.36 billion in assets and $88.59 in deposits at the end of last year.
All of the depositors of Signature Bank and Silicon Valley Bank will be made whole, and “no losses will be borne by the taxpayer,” the US Treasury Department and other bank regulators said in a joint statement.
The FDIC established a “bridge” successor bank on Sunday which will enable customers to access their funds on Monday. Signature Bank’s depositors and borrowers will automatically become customers of the bridge bank, the FDIC said. The regulator named former Fifth Third Bancorp chief executive Greg Carmichael as CEO of the bridge bank. Silicon Valley Bank customers will have access to their deposits starting on Monday, US officials said on Sunday. The federal government also announced actions to shore up deposits and try and stem any broader fallout. Read the full article