The collapse of Silicon Valley Bank, the global market began to feel uneasy, and the US banking regulator quickly took action to stabilize the situation.

The collapse of Silicon Valley Bank, the global market began to feel uneasy, and the US banking regulator quickly took action to stabilize the situation.

Silicon Valley Bank (SVB) headquarters in Santa Barbara, California, USA. On March 10, 2023, after SVB sold unexpired securities in response to a run on the bank and lost US$1.8 billion and finally declared bankruptcy, the U.S. banking regulator quickly took over the bank. AFP photo.

-WASHINGTON — 

Silicon Valley Bank (SVB - Silicon Valley Bank), the second largest bank failure in U.S. history, suddenly announced its collapse on Friday, causing global financial market and economic turmoil, sparking concerns about a potential systemic catastrophe. While experts say such fears are largely overblown, they warn that the fallout from the Fed's continued interest rate hikes to curb rising inflation will continue to affect the economy for a long time.

Companies around the world, from wineries in Western California to start-ups across the Atlantic, are scrambling to take emergency steps to see how they can manage their finances after a Silicon Valley bank collapses, according to the Associated Press. The biggest bank failure after the 2008 financial turmoil not only caused headaches for businesses, but also made employees of the affected companies unable to get paid on time.

California Governor Newsom said on Saturday that he was communicating with the White House to help stabilize the situation as soon as possible, protect jobs, people's livelihoods and the entire innovation ecosystem that supports the economy.

Customers who deposit less than $250,000 will be reimbursed by the Federal Deposit Insurance Corporation (FDIC). Regulators are currently trying to find a buyer for the bankrupt Silicon Valley Bank, so customers with deposits of more than $250,000 may be able to count on keeping their FDIC-insured deposits.

This includes companies like Circle, a major player in the cryptocurrency industry. Circle is a one-stop financial service organization for blockchain and the issuer of USDC (USD Coin), the second largest stable currency in the United States. A total of 40 billion USDC stable currency reserves are used, of which 33 billion are stored in Silicon Valley Bank.

That sent the value of USD Coin, which is trying to stabilize on the dollar, down below 87 cents on Saturday, though it later bounced back to 97 cents, according to a report by CoinDesk, a news site focused on bitcoin and digital currencies.

Across the Atlantic, start-ups found out early Saturday that the UK branch of Silicon Valley Bank had stopped paying and saving. The Bank of England said late on Friday that it would place Silicon Valley Bank in bankruptcy proceedings so it could pay up to 170,000 pounds, or about $205,000, to joint accounts of eligible customers as soon as possible.

Dom Hallas, executive director of the Coalition for a Digital Economy (Coadec), which represents UK startups, tweeted that the coalition understands that there is a huge amount of start-ups and investments in the ecosystem Those who are heavily influenced by the UK's Silicon Valley Bank will be very concerned. He said there was a lot of "anxiety and panic".

The Bank of England said it would auction assets of the UK's Silicon Valley Bank to pay off bank creditors.

The collapse of Silicon Valley Bank is not only painful for startups, but also has a huge impact on another important industry in California. Silicon Valley Bank has been an important lender to the California winery industry since the 1990s.

The Associated Press quoted an analyst in the winery industry in California as saying that Silicon Valley Bank knows the wine industry very well. As one of the most important lending banks, its disappearance will definitely have a serious impact, especially in an environment of rising interest rates.

Seattle-based Shelf Engine is a company that helps supermarkets and stores count inventory and customer data. The company's CEO said millions of dollars in the company's funds are in Silicon Valley Bank and are currently frozen. He held an emergency meeting on Friday to work out how to pay about 40 employees. He said that he would first apply for 250,000 FDIC insurance compensation to pay wages, but he would not last long, and then he could only hope that Silicon Valley Bank could be acquired as soon as possible and get back as much money as possible.

According to Forbes magazine, an analyst at Bank of America, one of the largest banks in the United States, said that the market "panic" caused by the failure of the Silicon Valley bank may be exaggerated, but the analyst also said that the banking industry will continue to struggle. until concerns about inflation recede. The timeline for that prospect is very uncertain, though.

Where is the root cause of the failure?    

Silicon Valley Bank is the 16th largest bank in the United States, with assets of more than 200 billion US dollars, mainly serving start-ups in the technology industry. It is generally believed that this bank's investment is relatively conservative, and the risk of its asset portfolio is not high. 

According to media reports and industry analysis, there are two main reasons for the collapse of SVB Bank. One was affected by the collapse last year of its main client, the cryptocurrency exchange FTX. Regulatory investigations into FTX unnerved Silicon Valley Bank customers, triggering a run on the bank. Second, in the face of a run on the tide, Silicon Valley Bank was forced to sell $21 billion of high-quality securities, but the value of these securities was greatly depreciated by the impact of the Fed's strong interest rate hikes. dollar loss.

Many industry commenters on the Internet said that if it were not for the Fed’s continued imposition of interest rate hikes, Silicon Valley Bank would likely have raised enough funds to cope with the run and avoid bankruptcy by selling bonds at normal prices.

The Wall Street Journal says the FDIC has taken over Silicon Valley Bank and has transferred all of its deposits to a new physical bank created by the FDIC. Starting next Monday, protected depositors will be able to withdraw deposits up to $250,000 at their banks, the FDIC said.

Depositors with more than $250,000 in deposits will receive a certificate of receivership and contact the Federal Deposit Insurance Corporation (FDIC) a week later to discuss resolution.

Most people in the industry believe that this event is different from the 2008 financial crisis and is unlikely to cause a full-scale financial turmoil. Since 2008, the supervision of the US banking industry has been very strict, and bank firewalls have been established. In addition, after the incident, the U.S. regulatory authorities quickly took over Silicon Valley Bank to control the spillover effect.

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