Given the outlook, the stock market opened downwards for the financial sector.
America’s banking system was shaken by an earthquake that no one expected. The earthquake, which destroyed three banks, forced authorities to take drastic measures to reassure customers.
It all started Wednesday night after the announcement of the liquidation of Silvergate Bank, a small regional bank that has become a favorite destination of the cryptocurrency community.
The La Jolla, Calif.-based company has suffered a series of setbacks in the crypto world, particularly with the FTX platform debacle, but has faced a wave of exits and has been unable to deliver on its commitments. .
That same night, another much larger bank, Silicon Valley Bank (SVB), also announced that it was experiencing massive withdrawals.
Favored by many in the emerging tech sector, SVB was struggling with the slowdown in the new economy.
Due to the difficulty of raising funds, investment funds are increasingly turning to banks. Also, for startups, there is a chronic need for cash flow to fund growth.
SVB, like other banks, is under pressure from the Federal Reserve’s (Fed, Central Bank) aggressive monetary tightening.
Most of the money that banks ask for is short-term to lend in the long term.
In general, they benefit from the fact that short-term interest rates are significantly lower than long-term rates. But the Fed’s tightening has caused the opposite phenomenon, narrowing bank spreads.
In a cautious presentation on Wednesday, the SVB highlighted the strength of its accounts and the relatively low ratio of loans to deposits.
However, it announced that it had launched a $2.25 billion capital increase, in addition to lower deposits.
He also revealed that he had urgently sold a $21 billion portfolio of financial securities to ensure cash reserves. That’s lost us $1.8 billion.
But what is the US government’s proposal in the event of a crisis?
U.S. and European regulators on Monday sought to allay concerns about the health of the banking system following the failure of Silicon Valley Bank, which was forced to take steps to protect deposits.
US officials announced on Sunday, and UK officials on Monday announced measures to protect funds deposited with California bank Silicon Valley Bank (SVB) and to reassure individual customers and businesses.
On Sunday, U.S. officials unveiled a sweeping move to fully bail out client funds from the bankrupt SVB, with regulators announcing the closure of a second bank while other institutions sought to protect clients. Vowed to help meet needs.
In a joint statement, financial institutions and the Treasury Department said SVB’s clients will have access to “all funds” starting Monday, March 13, and that U.S. taxpayers will not bear the cost of the disaster. .
At the same time, the Federal Reserve (Fed, central bank), Federal Deposit Insurance Corporation (FDIC), and the Treasury have announced that depositors of signatory banks, which are local-level lenders based in New, will be fully refunded. I said I would. York, which has significant exposure to cryptocurrencies, closed Sunday after its stocks plunged.
And in a potentially important precedent, the Fed has announced that banks will provide additional funding to meet the needs of depositors. This also includes withdrawals.
“The U.S. banking system remains resilient and well-founded,” the institutions said as new safeguards were introduced to the banking industry following the 2008 financial crisis reforms. .
The UK government has announced that SVB’s subsidiary in the country has been sold to HSBC.
“Today, Silicon Valley Bank (UK) was sold to HSBC. SVB UK customers will be able to access deposits and banking services as usual from today,” the Treasury said in a statement.
In a statement Sunday night, US President Joe Biden promised to “explain” those responsible for the bank failure, adding that he would deliver a reassuring message to the public about System Banking on Monday morning.
The FDIC guarantees deposits, but up to a maximum of $250,000 per customer per bank.
But federal banking law allows the FDIC to protect uninsured deposits if doing so would put the system at risk, The Washington Post reported.