The topic that inflamed the weekend for the financial sector has surely been the Silicon Valley Bank (SVB). But who really is this bank giant that not many have ever heard about?
The bankruptcy request from Silicon Valley Bank.
Friday March 10th, SVB, a bank giant with headquarters in Santa Clara in California, has filed for bankruptcy, which wouldn’t be unusual for financial markets, if it wasn’t for the fact that such a bank was placed among the best american banks based on Forbes.
The causes of its bankruptcy were confirmed and seem to be owed to increasing interest rates by the Federal Reserve, which had done so almost one year before to combat inflation. As a matter of fact, the investors have less appetite for risk when the money available is more expensive due to high interest rates. This has weighed on tech startups, the main clients at Silicon Valley Bank, as it made its investors more averse to risk.
Not being able to collect capital from the IPO and having made the private fund raising more expensive, some Silicon Valley Bank clients started to withdraw money to satisfy their liquidity needs.
As a consequence, Silicon Valley Bank has started to try and satisfy their clients’ withdrawals. To finance the reimbursements, Silicon Valley Bank has sold on Wednesday a bond portfolio of 21 Billion USD mainly made up of US based treasury.
Such a portfolio made an average of 1,79% annually, a lot lower than the current Treasury ten-year income of 3,9%. This has obliged SVB to recognise the loss of $1,8 billions, covered up by a capital increase.
From here, the escalation has been rapid, surely worsened by some indiscretions coming from the crypto world.
The consequences
SVB has partially solved the situation in the USA thanks to the Federal Deposit Insurance Corp intervention. Starting from today, the National Bank of Santa Clara has been created. To this new institution all assets and deposits sitting at SVB have been moved, so the clients will be able to recover part of their capitals.
While in the American case a new bank has been created which replaced the precedent, in the English case, SVB UK has been acquired by HSBC for 1£ nominal, without any risk connected to the main American company. Those who were SVB UK are now HSBC clients and will be able to use their deposits. To make selling easier, the Bank of England and the UK Treasury have confirmed their presence to protect their population’s patrimony without the need to use contributors’ funds.
The repercussions on crypto world
Obviously, events this big will shock the market, but this time the crypto investors had the worst time.
During its depositary bank work, in fact, SVB showed as one of the chosen banks by Circle Internet Financial, emittent company of stable coin USDC. After an unsuccessful ransom of 3,3 billion dollars, last Saturday, USDC, which should be valued 1:1 to USD, has broken such parity lowering to 0,91 USD. This has destabilized the whole market bringing along other stable coins.
Further to the SVB difficulties, the crypto market has seen a significant fall in value throughout last week, with Bitconin under 20.000 USD for the first time in alemost two months. This is due to the correlation between tech companies and the crypto market, as the interest rates increase from the Federal Reserve in the past year has weighed a lot on risky assets like shares and digital currencies.
Moreover, the fall of Silvergate Capital, an important lender within the cryptocurrencies, has had a significant impact on the market. Its fall is another example of how the fallo of the main cryptocurrency exchange platform, FTX, important Silvergate’s client, has had an impact on the industry.
Besides this week’s bad news, many investors have seen an opportunity to buy at low prices, and the cryptocurrencies market has bounced back up very quickly. Today, BTC has almost fully recovered its value, like ETH and other stable coins.
