A police officer at the Silicon Valley Bank office in Santa Clara, Calif., last Friday. /AFP
US bank Silicon Valley Bank, which has been under the control of US authorities due to “bankruptcy” from Friday, is an institution closely associated with a sector hit by a decline in the tech sector.
The California Department of Financial Protection and Innovation (DFPI) has closed the state-based SVB and designated the Federal Deposit Insurance Corporation (FDIC) as the custodian of bank funds, federal agencies reported Friday.
DFPI “acquired Silicon Valley Bank due to insufficient liquidity and insolvency,” the California agency said.
What is BLS?
Silicon Valley Bank (SVB) is a technology-focused bank in California with funds that invest primarily in companies that are not publicly traded. Little known to the public, he is the 16th largest bank in the United States by assets.
The company had operations in the United States, Europe, Asia and Israel, providing financial services to startups and others, from simple bank accounts to capitalization advice.
What was the troubled bank looking for?
The bank’s parent company, SVB Financial Group, announced Wednesday that it will seek a new round of funding of $2.25 billion. The group quickly sold its $21 billion portfolio of financial titles and suffered an estimated loss of $1.8 billion.
SVB was looking to bolster its finances, weakened by customer withdrawals, until an announcement was made this Friday by federal and state officials.
The Wall Street Journal, citing sources close to the banking sector, said the investment fund had advised companies to withdraw money from the SVB, in response to which the bank’s CEO said on Thursday. urged “not to withdraw deposits or sow fear or panic”.
On Friday morning, the listing of SVB shares on the New York Stock Exchange was suspended until further notice from the company, after the stock fell 60% and more than 60% on Thursday. opening.
According to economic channel CNBC, the bank was unable to obtain the required capital and was negotiating a sale to another bank. The bank’s 17 branches will reopen Monday under the control of a new organization specially created by the FDIC to manage the agency’s operations.
Why is SVB in trouble?
SVB, which has close ties to tech companies, has suffered a deterioration in the sector. A sharp rise in interest rates in the U.S., which affects a sector heavily reliant on financing for growth, combined with a difficult supply of semiconductors and a waning appetite, has pushed the number of investors in tech stocks down. It marks the end of post-pandemic tech euphoria.
Tech market caps will collapse in 2022, and mass layoff announcements at Silicon Valley companies have doubled in recent months.
Interest rate hikes decided by the Federal Reserve Board (Fed, central bank) also affect banking institutions.
Banks raise funds in the short term and lend in the medium to long term.
Why does technology suffer?
Problems with a single bank can affect investor confidence in sectors around the world. Banks are interdependent, as the 2008-2009 financial crisis and the bankruptcy of Lehman Brothers demonstrated.
The specter of bank runs, a chain reaction that begins with massive customer withdrawals and overwhelms banks, looms over the industry at all times.
To meet the demand for cash, banks have no choice but to raise funds or transfer assets quickly. This exacerbates the difficulty, often with costs and losses.
At the end of 2022, banks had $209 billion in assets and about $175.4 billion in deposits, according to authorities.