Silicon Valley Bank Collapse: The Biggest Bank Failure Since 2008
Silicon Valley Bank Collapse: The Biggest Bank Failure Since 2008– Startup-focused lender Silicon Valley Bank 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.
More about the ongoing wide spread banking crisis:
Silicon Valley Bank, the nation’s 16th largest bank, failed on Friday, forcing a government takeover and putting nearly $175 billion in customer deposits in jeopardy.
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Signature Bank, the 29th-largest bank in the U.S., also closed its doors, suggesting the financial panic had spread.
Many bank stocks fell sharply in early trading. Before trading was halted, First Republic Bank fell 65%, and Western Alliance Bancorp fell nearly 60%. Charles Schwab, the eighth-largest bank in the United States, fell nearly 10%.
The extent of the crisis:
Silicon Valley Bank’s failure is the largest since Washington Mutual went bust in 2008, a hallmark event that triggered a financial crisis that hobbled the economy for years. The 2008 crash prompted tougher rules in the United States and beyond.
The real cause of Silicon Valley Bank Collapse:
The genesis of SVB’s collapse lies in a rising interest rate environment. As higher interest rates caused the market for initial public offerings to shut down for many startups and made private fundraising more costly, some large clients pulled money from the bank and it was forced to sell some of the distressed securities in order to provide the cash.
The bank’s vulnerable balance sheet scared other major depositors, who withdrew their funds, sparking a bank run that gained momentum quickly because the bank relied on a relatively small number of large depositors. It collapsed within days.
To fund the redemptions, SVB sold a $21 billion bond portfolio consisting mostly of U.S. Treasuries, and said it would sell $2.25 billion in common equity and preferred convertible stock to fill its funding hole.
The collapsing stock price had made its capital raise untenable and sources said the bank tried to look at other options, including a sale, until regulators stepped in and shut the bank down.