March 10. SVB Financial Group declared bankruptcy, with California banking regulators closing the bank, which did business as Silicon Valley Bank, on Friday and naming the Federal Deposit Insurance Corporation (FDIC) as receiver for the subsequent disposition of its assets. The collapse of Silicon Valley Bank is the largest bankruptcy since Washington Mutual’s 2008 collapse. That comes after the Santa Clara-based bank was ranked No. 16 in the U.S. late last year, with about $209 billion in assets. Despite the fact that a number of emergency procedures were put in place by the US Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation on Monday to avoid a banking catastrophe. Beginning on Monday, customers of the defunct Silicon Valley Bank will have access to all of their accounts after authorities implemented a new system that grants banks access to emergency money and seems to address any immediate issues. Nevertheless, the safety of bank funds still caused panic among the public. The collapse of Silicon Valley Bank is also a sign of the tough times the U.S. economy is facing.
SVB’s bankruptcy portends economic woes
The media and financial practitioners focused on this major market change incident on the single customer structure of Silicon Valley Bank and the failure of the bank’s top executives to deal with it. It is pointed out that the collapse of SVB is an isolated case, and there is no risk of contagion in other banking industries. And said the deposit bases of major banks are much more diversified than SVB’s and that the big banks are in good financial shape. However, at the root of the SVB collapse was a rising interest rate environment. We have long accepted the theory that higher interest rates will be good for banks. Now we have higher interest rates and the banks are the worst performers. As higher interest rates closed the market for many start-ups’ public offerings, making private funding more expensive, some clients began withdrawing their funds, causing a bank run.In the long-term rising interest rate environment, the collapse of SVB is the first chain broken by the banking industry. The collapse of SVB directly illustrates the difficulties faced by American startups in the current economic environment. Startups, which often provide a country with major employment opportunities, can lead to job losses and reduced economic activity when they stop growing. Additionally, startups are known for their ability to innovate and disrupt existing industries. If they stop growing, it could lead to less innovation, leading to less competitiveness and less dynamism of the economy leading to a recession. The collapse of SVB indicates that the US economy is not optimistic. Although other large banks and corporations have the ability to deal with greater risks, past experience shows that when the risk comes, the risk does not give any ability time to react. Earlier this month, the U.S. Federal Reserve gave the standard reassurance in a report to Congress: Banking is strong and the overall financial system is sound. That confidence is now being tested as the Fed and other regulators grapple with Friday’s Silicon Valley bank collapse. Home Depot co-founder Bernie Marcus said on “Cavuto Live” on Saturday: I can’t wait for Biden to give another speech and talk about how great the economy is and how it’s moving forward and getting stronger every day. This shows that nothing he said was true. And maybe the American people will finally wake up and understand that we’re living in very tough times, that, in fact, that a recession may have already started. Who knows? But it doesn’t look good. The former chief executive ended with a stark economic warning to consumers, calling the Biden administration “obtuse” to the issues plaguing ordinary Americans. ‘The Fed keeps raising rates and inflation keeps going in the wrong direction. It’s not staying where it should be. People are struggling. They can’t fill their tanks with gas. And if you think that’s a good sign, I don’t think it is. And we have an administration that’s obtuse to this. They just keep talking about the great times and how good it is. It’s not good,’ Marcus concluded.
Fund security issues exposed by the collapse of SVB
Before SVB collapsed, some venture capitalists began advising startups to withdraw their funding. Panic broke out among the bank’s customers. A race begins to withdraw funds deposited in the bank. $42 billion disappeared from SVB’s books, more than a million dollars per second during the ten working hours of the day. It was the largest bank outflow from the United States in modern times. Before that, Washington Mutual held the record in 2008, when it pulled $16.7 billion in ten days. SVB’s losses for the day are unbearable amounts for any institution, and Silicon Valley Bank was overdrawn by $958 million on Friday, according to the California Department of Financial Protection and Innovation. While the FDIC has a standard deposit insurance of $250,000 per depositor, per insured bank, per account ownership class, which is good for small depositors, it cannot Protect the rights and interests of a large number of large-scale cash depositors. Like most large US banks, SVB also has a large customer base abroad, mostly from the UK, China, India, Israel, Germany, Canada and Australia. Apparently, some domestic and foreign companies that did not receive advice suffered huge losses in capital and property due to the time difference and poor information. Although, under the intervention of the government, customers of the bankrupt Silicon Valley Bank will be able to use all their deposits, but solving the impact of SVB’s bankruptcy at this stage does not mean solving the existing problems of the current US economic and financial system. If the next risk comes, will the government still have the ability to come forward to protect their financial security. Even if depositors are eventually able to get their deposits back, if there is a significant delay in accessing funds. This is especially problematic for those who need money to cover immediate expenses, such as paying bills or paying medical bills. After the collapse of SVB, many companies said that the safety of funds in the United States is worrying, and they are considering transferring funds to other regions.
