Largest U.S. Bank Failure Since 2008

❖ (Silicon Valley Bank – SVB) Silicon Valley Bank

- Date 11-3-2023

- ❖ Banking experts said that the collapse of Silicon Valley Bank in the United States, which was founded in 1983 in California... and ranks as the sixteenth largest bank in the United States, could create a gap in the most innovative sector of the American economy (the technology sector), threatening risks to this sector, disrupting the paychecks of technology employees and users, and pushing other regional banks into a similar plight..!

- The bank is considered an important lender to Start Ups in the early stage, and is the banking partner for nearly half of technology companies..!

- Experts say that the bank is one of the victims of the sharp interest rate hikes during 2022, which were adopted by the US monetary authorities in order to raise borrowing costs for investors, slow the economy, and eliminate inflation.. according to what US Federal Reserve officials disclosed at the time..

- The problems the bank faced led customers to rush to withdraw their money, raised concerns about the condition of the banking sector, and officials said they moved to "protect insured depositors."

● US regulators closed Silicon Valley Bank (Silicon Valley Bank – SVB) last Friday, and took control of customer deposits, in the largest US bank collapse since 2008

● U.S. regulators entrusted the Federal Deposit Insurance Corporation FDIC, to reopen the bank’s 17 branches.. which are based in California, next Monday... and to allow customers to withdraw up to 250 thousand U.S. dollars in the short term.. which is the amount the Corporation usually insures..!

● In this regard, the California Department of Financial Protection and Innovation DFPI formally took over the bank. The bank's assets at the end of 2022 were valued at 209 billion dollars, with deposits of 175.4 billion dollars...

● The Federal Deposit Insurance Corporation, which usually insures deposits up to 250 thousand dollars, said that it had taken on about 175 billion dollars of the deposits held at the bank,

● It added that bank offices will open their doors, and customers with insured deposits will have access to funds "by no later than Monday morning," adding that funds collected from the sale of the bank's assets will go to uninsured depositors.

● US Treasury Secretary Janet Yellen, speaking in Washington on Friday, said she was monitoring the "recent developments" at Silicon Valley Bank and others "very closely." She said: "When banks suffer financial losses, it is and should be a cause for concern"

· According to tweets by banking and financial analysts... Silicon Valley Bank was unexpectedly closed with more than 170 billion dollars in assets, leaving more than 40,000 clients, including startups and private equity firms, unable to access their funds. Experts confirmed that, unlike what happened in 2008, SVB did not engage in risky lending, but it became greedy. Total client deposits grew from 62 billion dollars in 2019 to 190 billion dollars in 2021. As we noted earlier.... the low interest rate environment led to cash flows into investment in the technology sector, and banks lent customer funds to provide returns. However, SVB could not expand its loan book quickly enough, so it turned to buying mortgage-backed securities (MBS) worth 80 billion dollars. When the Federal Reserve raised interest rates, tech valuations fell, startups continued to burn cash, and deposits fell from 200 billion dollars to 170 billion dollars, which are expected to continue declining. If the problem is not resolved by the coming Monday, other regional banks such as First Republic, Signature Bank and Western Alliance are at risk of failure.

· This analysis matches... the narrative of The Economist about the causes of the Silicon Valley Bank crisis. Its report dated 11-3-2023 explained that the cause of the bank's crisis was that the bank's deposits had more than quadrupled over 4 years (from 44 billion dollars in 2017 to 189 billion dollars at the end of 2021), while its loans to startups grew from 23 billion dollars to 66 billion dollars. Because banks earn profits from the spread between the interest rate they pay on deposits and the rate borrowers pay, having a deposit base much larger than the loan book represents a problem that requires banks to acquire other income-bearing assets. Thus the bank had invested by the end of 2021 an amount of 128 billion dollars, most of it in mortgage-backed securities and Treasury bonds at high prices (peak prices). Then the world changed, according to the report, interest rates rose with entrenched inflation, bond prices fell, leaving Silicon Valley Bank uniquely exposed. Customers reduced their deposits from 189 billion dollars at the end of 2021 to 173 billion dollars at the end of 2022. The bank was forced to sell its portfolio of liquid bonds entirely at prices lower than before, incurring losses of about 2 billion dollars, leaving a gap the bank tried to fill by raising capital (equity).. but it failed.. Panic appeared among customers... and the bank was closed on Friday.. the bank's share fell about 60% then 70% and then the bank was closed by US regulatory authorities.. last Friday as we explained above..