California 11 March 2023 . America’s 16th largest bank – Silicon Valley Bank has been ordered to be closed by the regulators. California’s Department of Financial Protection and Innovation has issued this order. Shares of the bank’s parent company SVB Financial Group fell by nearly 60% on 9 March. After this it was stopped for trading. This is the biggest failure in US history since the 2008 financial crisis.
According to Reuters, US banks have lost $ 100 billion in the stock market in the last 2 days due to the fall in SVB’s shares. At the same time, European banks have suffered a loss of 50 billion dollars. The Federal Deposit Insurance Corporation (FDIC) announced on Friday a Silicon Valley bank takeover. Along with this, he has also been given the responsibility of keeping the money of the customers safe. Silicon Bank will now open on March 13, after which all insured depositors will have the freedom to withdraw their deposits.
Only deposits up to Rs 2.5 crore will be returned
The bank had assets of $209 billion and deposits of $175.4 billion by the end of 2022. 89% of this amount was not insured. Customer deposits up to $250,000 (Rs 2.5 crore) are covered by F.D.I.C insurance. That is, even after the closure of the bank, this money will be returned to the customer. At the same time, there is no guarantee that the depositors who have deposited more than this amount in their accounts will get all their money back or not. However, the FDIC will issue a certificate to such customers. Under this, after the fund is recovered, the money will be returned to them first.
Understand the collapse of Silicon Valley Bank in a sequential manner
Silicon Valley Bank had $ 189 billion in deposits in 2021. Silicon Valley Bank had bought several billion dollars of bonds with the money of its customers in the last 2 years, but it did not get proper return on this investment due to low interest rate. Meanwhile, the Federal Reserve Bank increased interest rates for tech companies.
Most of SVB’s clients were start-ups and tech companies that needed funding for their businesses. In such a situation, she started withdrawing money from the bank. Investors in tech companies reduced due to rising interest rates. Due to non-availability of funding, the companies also started withdrawing their remaining money from the bank. Due to frequent withdrawals, the bank had to sell its assets.
On March 8, SVB reported that it had sold several securities of the bank at a loss. Also, to strengthen its balance sheet, it announced the sale of new shares worth $ 2.25 billion. This created an atmosphere of fear among many big capital firms and the firms advised the companies to withdraw their money from the bank.
After this, the stock of SBV declined on Thursday, due to which the shares of other banks also suffered heavy losses. The shares of SVB were put on hold till Friday morning after investors were not found. In addition, several other bank stocks were also temporarily blocked on Friday, including First Republic, PacWest Bancorp and Signature Bank.
Indian companies will also be affected
The closure of the bank will also affect many Indian start-ups. SVB has invested in around 21 startups in India. SVB’s most significant investment in India is in SAAS-unicorn iSertis. In October 2022, SVB invested about $ 150 million in this company. Apart from this, SVB has also invested in companies like Bluestone, Paytm, One97 Communications, Paytm Mall, Naaptol, CarWale, InMobi and Loyalty Rewardz.
The biggest recession came in America in 2008
When the US markets opened on 29 September 2008, records for the fall were broken. About 1.2 trillion dollars was cleared in just one day. Which was equal to the total GDP of India at that time. Earlier in 1987, such a huge decline was seen in the US market. Market heavyweights such as Apple 18%, Citigroup 12%, JP Morgan were down 15%. Lehman Brothers was the biggest reason behind the economic recession.
In fact, in 2002-04, the demand for property was increasing in the US due to cheaper and easier home loans. In this boom, Lehman bought 5 loan companies. But due to high prices, demand started falling and loan defaults started. As a result, in March 2008, America’s second largest home loan company Bear Stearns drowned. On March 17, Lehman’s shares fell by 48 per cent. After this, on September 15, Lehman applied for bankruptcy and on September 29, the US market
