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Monday, May 27, 2024

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US: Silicon Valley Bank Collapses, Assets Seized

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The run on Silicon Valley Bank (SVB), the biggest failure of a financial organization since the height of the financial crisis more than ten years ago, prompted US regulators to move quickly to seize the bank’s assets on Friday.

The 16th biggest bank in the US, Silicon Valley Bank, collapsed last week as a result of a rush by depositors to quickly withdraw their funds, mostly technology workers and venture capital-backed businesses.

The bank’s last efforts to raise additional funds were unsuccessful because it was unable to handle the customers’ massive withdrawals.

As a result, US authorities formally took control of the bank and gave its administration to the US agency in charge of deposit insurance, the Federal Deposit Insurance Corporation (FDIC).

SVB, a bank with a focus on startup funding, was one of the biggest banks in the US by total assets at the end of 2022 with $209 billion in assets and roughly $175.4 billion in deposits. Its collapse ranks as the second-largest retail bank failure in American history.

The panic movement on the markets began on Thursday after SVB announced that it was trying to rapidly raise capital to handle the massive customer withdrawals, but had failed and had sold for $21 billion of financial securities, losing $1.8 billion.

The sudden rise in interest rates, which is reducing the value of bonds in investors’ portfolios and raising the cost of credit, added to their concerns about the soundness of the entire banking industry and investors were taken aback by the news.

On Thursday, the four biggest US banks lost $52 billion on the stock market, which caused Asian and then European institutions to collapse in their wake.

BNP Paribas dropped 3.82 percent, Crédit Agricole 2.48 percent, and Société Générale 4.49 percent in Paris. The British bank Barclays fell 4.09 percent, the German bank Deutsche Bank 7.35 percent, and the Switzerland UBS 4.53 percent.

Banks have been required to provide their national and European regulators with strengthened evidence of solidity since the financial crisis of 2008/2009 and the failure of the American bank Lehman Brothers.

For instance, they have to argue for a greater minimum capital requirement to cover losses.

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