The shocking collapse of Silicon Valley Bank (SVB) on Friday has caused alarm and uncertainty among the global banking industry, as it is the biggest US banking failure since the 2008 financial crisis. SVB was a major lender to US startups and had become the 16th largest US bank by assets with $209 billion in assets and approximately $175.4 billion in deposits at the end of 2022. Here's a look.
The California Department of Financial Protection and Innovation (DFPI) closed SVB and appointed the Washington-based Federal Deposit Insurance Corporation to take it over, protecting customers with up to $250,000 in deposits. This was followed by news that SVB was in talks with potential buyers after attempts to ride out the crisis on its own failed, leading investors to worry if other banks could face similar losses as they look to raise cash amid ever-rising interest rates.
On Wall Street, shares in major banks such as Bank of America, Wells Fargo and Citibank seesawed as US Treasury Secretary Janet Yellen expressed "concern" about the situation, while European banking giants such as Deutsche Bank were sent into turmoil by news of SVB's decline. A day after the four biggest US banks lost a whopping $52 billion in market value following signs of trouble at SVB, European banking stocks were similarly affected. At SVB's headquarters in Santa Clara, California, people stood around nervously discussing how they would access their funds now that the bank was no longer tenable on its own. One customer remarked, "It's not a good situation. A lot of really top tier (venture capital firms) have very high amounts of exposure here."
Deutsche Bank analysts stated, “Is this another mini wobble on this front or the start of something bigger? Tough to tell, but I would be stunned if there weren’t many more casualties of this boom-and-bust cycle.” They warned that something always breaks hard during or after a Fed hiking cycle, highlighting that these exceptional forces appear set to cause serious damage for other banks like Silicon Valley Bank across not just America but also beyond its borders - leaving customers scrambling for answers and reassurances amidst an atmosphere rife with insecurity. Stay tuned.