Where does the financial turmoil in the United States come from?
Technology companies have been the symbol of the success of the American economy for 20 years. But that’s where the crash came from. The Silicon Valley Bank (SBV), an institution that specializes in financing start-ups, suddenly suffered massive withdrawals from its customers, worried about the prospect of bankruptcy. This movement accelerated the fall and the fate of the SVB was decided in a few hours.
Boosted by the rise of the tech giants, the SVB had become in recent years the sixteenth American bank. The panic began when the SVB announced that it had proceeded, at the beginning of March, to a sale of assets to refinance itself, up to 21 billion dollars, losing nearly 2 billion in the process. Customers saw this as a sign of fragility and started withdrawing their funds.
The SVB found itself trapped because it had grown too fast and did not anticipate the rise in interest rates. She had invested her huge amounts of cash received from her clients in long-term bonds, the value of which fell due to the rise in rates. The value of its reserves therefore decreased and the bank no longer had enough counterpart to the deposits.
The American Deposit Guarantee Agency, the FDIC, has taken control of the establishment, which will now be sold and seek a way to best reimburse all of its customers.
What are the consequences for the US economy?
The bankruptcy of the SVB caused a fall in the prices of bank shares on all markets, first in the United States and then in Europe and Asia. However, prices recovered a little on Friday.
US Treasury Secretary Janet Yellen summoned financial sector regulators on Friday to discuss the situation, reminding them that she had “full confidence” in their ability to take appropriate action and believed that the banking sector remained “resilient”.
For now, the bankruptcy of the SVB is especially likely to weigh on the many technology companies that are customers of the establishment. They may find it difficult to pay their employees because FIDC-guaranteed deposits are only up to $250,000. This is the maximum amount they will be able to withdraw from Monday. But many had much larger cash flows.
Additionally, many Silicon Valley venture capital firms also had funds on deposit at SVB. The whole financing system for technology companies is in trouble.
Is this a new crash comparable to the crisis of 2008?
This spectacular fall awakens the memory of the 2008 crisis, when the bankruptcy of the American bank Lehman Brothers had caused a general blocking of the American finance industry and caused a drying up of liquidities. The question now is whether the failure of this institution can have repercussions on the entire financial system.
The first analyzes published estimate that this will not be the case, because the big banks are better capitalized than they were in 2008 and the regulators are more demanding. A note from Stephen Innes, an analyst at SPI Asset Management, judges, for example, that the risk of “a capital or liquidity incident among the big banks” is “low”. Similarly, analysts at Morgan Stanley judge that the bankruptcy of the SVB is a special case and that it should not lead to a “shortage of liquidity” in the coming days.
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