Silicon Valley Bank shutdown marks biggest bank failure since 2008 crisis

When the banking panic begins, the case is lost. Silicon Valley Bank (SVB), specializing in venture capital, was administratively closed on Friday morning March 10 by the Californian branch of the Federal Deposit Insurance Corporation (FDIC), the American deposit guarantee authority, after its customers began, Thursday March 9 and Friday March 10, to withdraw their funds massively.

The SVB was the sixteenth American institution with 210 billion dollars (197 billion euros) in assets, and it is the biggest bank failure since the great financial crisis of 2008. The bank, which came under the control of the FDIC, will reopen Monday; deposits are guaranteed by federal law up to $250,000. Beyond that, everything depends on the sums that will be recovered during the liquidation or sale of the institution. At the end of December 2022, SVB housed $175 billion in deposits.

The case threatens in the short term many venture capital companies, especially in the areas of San Francisco and Boston, where the bank was established. The number of companies that have managed to withdraw their funds is not known, but it is very likely that many start-ups, which raise cash which they then gradually consume, have deposits well above the guaranteed $250,000. .

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The names of the first victims begin to fall. Roku, a streaming startup, announced that it had deposited $487 million, or a quarter of its cash in SVB. Silicon Valley is worried. “The real victims are the depositors: start-ups with ten to a hundred employees who cannot pay salaries, and who will have to close or lay off next week. If these companies wait weeks or months for their filings, we will have destroyed a random generation of American start-ups”, deplores, on Twitter, the entrepreneur Garry Tanwhich helps start-ups.

The discretion of the Secretary of the Treasury, Janet Yellen, or the President of the American Federal Reserve (Fed, central bank), Jerome Powell, is beginning to exasperate, as evidenced by the tweet of entrepreneur-investor David Sacks : “Where’s Powell?” Where is Yelen? Stop this crisis NOW. Advertise that all depositors will be guaranteed. Have SVB taken over by one of the four major banks. Do it before the markets open on Monday, or there will be contagion and the crisis will spread. »

management in question

The panic began on Wednesday March 8, when the SVB announced that it had liquidated a portfolio of bonds and treasury bills of $21 billion and incurred a loss of $1.8 billion. The bank found itself trapped by the Fed’s rate hike, which drove the cost of money from zero to more than 4.5% in one year. Treasury bills she had bought to invest deposits from her clients – start-ups that took advantage of the Covid-19 free money period to raise capital – lost some of their value as prices rose. rate.

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