Named the global consequences of the collapse of one of the largest US banks

As a result of the largest banking collapse since the 2008 crisis in the United States, Silicon Valley Bank collapsed. US regulators have seized SVB assets, and global institutions are closely monitoring the situation, which could come back to haunt the world.

U.S. regulators rushed to seize the assets of the largest technology lender, Silicon Valley Bank, on Friday after a raid on the bank, in what was the biggest failure of such an institution since the height of the financial crisis that hit the world more than a decade ago.

The Silicon Valley Bank (SVB), the country’s 16th largest bank, went bust after savers – mostly tech workers and venture capital-backed companies – rushed to withdraw their money this week, according to The Guardian. spreading anxiety about the situation in the bank.

Global institutions are closely monitoring the situation amid fears that the resulting turbulence could put customer deposits at risk and lead to further panic throughout the financial system.

“Fear is contagious,” warns Angela Lee, professor of venture capitalism at Columbia Business School. – Mass withdrawals of bank deposits can start based on rumors, and this is much more than just rumors. I’m worried that people are overreacting to it.”

SVB sparked a global sell-off in bank stocks after it launched a rescue sell-off to plug a nearly $2 billion hole in its finances.

The bank lost funds when it sold a portfolio of bonds in response to a decline in customer deposits. These bonds fell in value as a result of higher interest rates, leaving the SVB in deficit.

The bank’s US-listed shares initially fell 60% on Thursday and were halted on Friday after falling 66% in pre-market trading before regulators intervened.

The challenges SVB faced were relatively unique given that the bank caters to tech start-ups that have dried up funding in recent months. Silicon Valley has been hit hard by the tech industry, and the likelihood of a banking sector contagion similar to the chaos in the months leading up to a recession more than a decade ago is low, The Guardian notes. The largest banks—those most likely to cause systemic economic problems—have healthy balance sheets and adequate capital.

However, these issues raised wider concerns that the recent hike in interest rates has affected the value of other banks’ bond portfolios, which tend to fall in value when interest rates rise.

Concerns have been raised about how this could affect the level of lenders’ capital, which is designed to offset the riskier parts of banks’ balance sheets. These fears caused, in particular, the fall of the shares of British banks.

As the name suggests, the Silicon Valley bank was the main financial conduit between the technology sector, its founders and startups, and its employees. Hundreds of companies kept their operating capital in the bank, and it was deemed wise to develop a relationship with a Silicon Valley bank if the founder wanted to find new investors or go public.

But Silicon Valley’s ties to the tech sector quickly became a liability. Tech stocks have been hit hard over the past 18 months, after soaring during the pandemic and spreading layoffs across the industry.

While the collapse of SVB is unlikely to have a major impact outside of technology, it will be “catastrophic” for startups, predicts Columbia University professor Angela Lee, and for the Silicon Valley atmosphere in general: “Startups can’t access their funds, and companies are about to exit. business to cover it. The sentiments resulting from this will be devastating all over the world.”