Silicon Valley bank went bust

Silicon Valley Bank, one of the largest US banks, recently went bankrupt. After Silicon Valley Bank, which has been in business since 1983 and is known for lending to new businesses in the tech industry, New York-based crypto-money-focused Signature Bank has also been shut down by market regulators. The bankruptcy of Silicon Valley Bank was recorded as one of the largest bankruptcies since the 2008 global financial crisis. These events also raised the question “Is a new financial crisis beginning?” worldwide. Let’s look at the details together.

A Silicon Valley bank went bust last Friday after customers withdrew billions of dollars from their accounts in a matter of hours.

Founded in 1983, the bank specialized in high-tech banking and made frequent loans to start-ups. In addition, Silicon Valley Bank also helped startups with IPOs. The bank, which is said to have grown significantly over the past 10 years, also had branches in countries such as the UK, Denmark, China, Germany, India, Israel and Sweden.

However, most of the operations of the bank, which has more than 8,500 employees, took place in the United States. On the other hand, Silicon Valley Bank’s total asset value as of December last year was $209 billion. In addition, the bank had $175.4 billion worth of deposits.

The bankruptcy of Silicon Valley Bank was recognized as the largest bankrupt in the US since 2008.

So much so that this bankruptcy is called the second largest bank failure in the history of the country. So what caused the failure of Silicon Valley Bank, the 16th largest bank in the US in terms of size?

How the Silicon Valley Bank Failed

The aggressive policy of raising interest rates, pursued by the US Federal Reserve over the past year to combat inflation, is alleged to be one of the factors that led to the bankruptcy of the Silicon Valley bank. An interest rate hike by the Central Bank halted the pace of growth in tech stocks from which the Silicon Valley bank benefited, causing borrowing costs to rise.

However, the “high interest rate” caused the bonds that the bank bought at “almost zero interest rate” in the previous period to become worthless. Following these events, Silicon Valley Bank announced that it would sell some securities at a loss, as well as sell $2.25 billion in new shares. However, these decisions did not save the bank from bankruptcy.

The US Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation have announced that depositors will be fully protected

In a joint statement by the three competent authorities, “The US banking system remains on solid and solid foundations, thanks in large part to post-crisis reforms that have protected the banking industry. The steps we are taking today, along with these reforms, show that we will take all necessary steps to ensure the safety of depositors’ savings.‘ was stated.

Also in the statement “Taxpayers will not pay their bills.and it was announced that depositors at Silicon Valley Bank could withdraw all of their remaining money from the bank.

A few days after the bankruptcy of Silicon Valley Bank, Signature Bank, which specializes in cryptocurrencies in New York, was closed.

In a statement issued by the New York City Department of Financial Services, it was announced that the US Federal Deposit Insurance Corporation has appointed a trustee for Signature Bank to protect depositors. As of March 8, the bank had deposits of $89.17 billion and assets of $110.36 billion as of December 31, 2022.

The successive bank failures in the United States have raised the question, “Is a new global financial crisis beginning?”

The events, interpreted as the worst financial crisis in the United States since 2008, have alarmed the banking and financial sectors worldwide. Many in the industry, especially in the countries where Silicon Valley Bank operates, fear that bankruptcy will trigger a global crisis.

For example, the head of 250 UK technology companies wrote a letter to Treasury Secretary Jeremy Hunt asking him to intervene in this matter. In addition, entrepreneurs warn that without government intervention, bankruptcy could sink many companies around the world.

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