Another bank is in crisis; Silicon Valley Bank (SVB) has followed a financial downturn amid Federal Reserve (Fed) Chairman Jerome Powell’s hawkish macroeconomic outlook and tightening policies to control inflation.
With more than 40 years in the market, Silicon Valley Bank is facing a significant decline in its stock, down more than 60% since Thursday.
On Wednesday, the bank for venture capitalists and technology startups launched a $1.75 billion sale of securities to raise capital and try to recoup previous losses, raising concerns among investors. According to some reports, the financial institution was shut down by California regulators.
“This is one of the biggest bank failures in history.”@sonalibasak explain why Silicon Valley Bank is closed by California regulators https://t.co/GWK95eOmwl pic.twitter.com/iwyCzsyskq
— Bloomberg Crypto (@crypto) March 10, 2023
What happened to SVB?
Ahead of today’s event, Silicon Valley Financial Group is considering options to get out of the crisis, including a sale after the struggling lender sent shockwaves through global markets and hurt its shares on the Nasdaq stock market.
According to Reuters reportSilicon Valley Bank needed to proceed to plug the $1.8 billion hole caused by selling the bond portfolio loss of $21 billion consisting mainly of US Treasuries.
Investors in SVB’s shares are confused as to whether the capital raised by the bank will be enough to cover losses. This perception arises from the continued decline in the fortunes of technology startups due to policies aimed at controlling inflation, which affects the technology sector that banks serve.
According to the report, Silicon Valley Bank told employees to go home until further notice, stating that the bank was undergoing a series of “unfinished” conversations to determine its next steps after the crisis was revealed.
In addition, the CEO of Silicon Valley Bank Gregory Becker has called customers to ensure that the capital is “safe” in the bank, which proved to be inaccurate due to subsequent events.
Silicon Valley Banking Crisis Hits All Financial Sectors
According to Reuters, the decline in SVB’s Shares has been more affected by the main US and European banks amid active concerns about hidden risks in the sector and “vulnerability” to the rising cost of money.
Wells Fargo & Co. has been hit by the ongoing crisis, down 6%. In addition, shares of JPMorgan Chase & Co. were also in free fall, down 5.4%, along with Bank of America and Citigroup Inc, down 6% and 4%.
Karl Schamotta, Head of Market Strategy at Corpay, a global leader in business payments, addresses the remaining issues with SVB and the banking sector’s claims:
Investors fear repeating the 2008-style Sort of dynamics, and this sell-off in the banking sector has raised fears of systemic risk and has raised expectations that the Federal Reserve will step in to provide some accommodation if it worsens.
This ongoing crisis in the midst of inflationary policies has also taken the crypto industry by storm, affecting all major currencies and leading them to lower levels. Bitcoin has now dropped from $22,000 to around $19,000.
The global crypto market capitalization was also affected, falling from the psychological level of $1 trillion to $900 billion, and is now below that important floor, falling to $897 billion.
according to for Karl, a crypto researcher at Thanefield Capital, a stable digital currency backed by US dollar assets and issued by CENTER – a joint venture between Coinbase and Circle, USDC, 26% of its reserves are in cash in banks, including SVB.
This crisis affects not only the banking sector but also the capitalization of the global crypto market and the price action of digital assets, which can visit lower levels and retest key supports, delaying the bull market that many analysts predicted for the crypto industry.
SVB shares have fallen from a high of $335 a share in early February and have been in free fall since the Nasdaq closed Wednesday at $225, now trading at $106.
Feature image from Unsplash, chart from TradingView.com