SILICON VALLEY BANK COLLAPSE AND ITS IMPACT ON DEPOSITORS, LENDERS, AND BOND HOLDERS
Before the collapse
SVB was on the radar of central bank of America (commonly referred as federal bank The fed) for more than a year. So what went wrong and why the sudden downfall couldn’t be avoided. The downfall of the bank was so swift but the demise on 10th of march 2023 can be understood . We can say it started with inflation coupled with several bad steps taken by the senior management at SVB .
Silicon Valley bank had around 17 branches across the USA with its headquarters in Santa Clara which is small city in The state of california.
Supervisors from federal reserve bank of san Francisco issues 6 citation which comes under “ matters requiring attention” and “matters requiring immediate attention,” SVB had liquidity issues so in an event of emergency . By July 2022 SVB was under full supervision and was declared as not sufficient for governance and controls .
SVB Tried many ways to raise capital although what triggered panic and chaos was SVB’sale of its Treasury portfolio at a significant loss net loss of 2.2 billions of dollars due to significant rise in interest rate by The FED and its failed attempts to raise capital to allow for continued withdrawals to stabilise its balance sheet. Following the aftermath of sale of Treasury portfolio, Another attempt to sell convertible equity to raise additional Capital was unsuccessful and even after resorting to sell the company did not materialise leading to a mammoth 60 percent decline in SVB’share price.
SCALE OF DISASTER
SVB had approximately $209 billion in total assets, with about $175.4 billion in Assets under management(deposits in this case). SVB mostly served technology-focused companies based in Silicon Valley. The FDIC stated on Friday that all insured depositors would have full access to their deposits no later than Monday morning.
It did not address the uninsured deposits in its initial statement which makes up more than 80% of total deposits, creating panic about their fate and the impact on the country’s mostly tech led start-ups and in general USA’s financing ecosystem
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