The Collapse of Silicon Valley Bank: Causes, Consequences, and Future Implications in 2023
Silicon Valley Bank Collapses: Panic Withdrawals of $42 Billion Amidst Second Largest Bank Failure in American History
The current state of the markets is, to put it mildly, quite frightening. What if you had time to deal with the bank you went to two days ago to deposit your money in? After working for 25 or 30 years, he abruptly stopped today and said we were out of money.
More than $200 billion was managed by the Silicon Valley bank. Take a moment to consider the value of 200 billion.
The American Silicon Valley Bank, which has been around for 40 years, stated today that it will be closing its doors in 48 hours owing to sudden circumstances.
People did not catch up to know the movie. In American history, this bank failure ranks second in terms of size. Moreover, it was the worst decline since the 2008 global market catastrophe.
It’s not really basic news, maybe as a result of Jerome Powell’s increased interest. So let’s see what happened and what could happen?
Silicon Valley Bank in Crisis: Panic Withdrawals of $42 Billion
Of course, this thinking could cross your mind: I want to open a bank account, say, in Britain, but wait—you might say, in America—after today’s news! Bank failure?
For forty years, the Silicon Valley bank has supported start-ups and tech enterprises by funding their initiatives and offering services to them.
The bank said we need a little examination after much discussion about the SEC securities exchange commission when it presented its annual report a few days ago.
They said that we need to collect $2.25 billion to keep our accounts in good standing.
Of course, this doesn’t imply a lack of resources; rather, it just indicates that they do not wish to scare the public or the market. Nonetheless, this issue is making individuals terrified as well as frightened.
The venture capitalists are terrified by this situation. “Those who support initiatives” might refer to themselves as an investor in a successful project since I am wealthy. such as the ones on Shark Tank.
What actions did venture capitalists take? Get the money out of the bank as soon as possible for all the businesses they invest in.
As these businesses began to take their money, the consumers continued hearing about it and made the decision to do the same.
They ran and began to withdraw their money. Hence, 42 billion dollars were taken from the bank in a few hours.
Silicon Valley Bank gives money to other banks, who then use it to establish thousands of accounts. Imagine this figure with me, if you will.
Everyone will lose because you’re lost in a crowded building when a fire breaks out.
Jerome Powell’s Interest Rate Hike Causes Collapse of Silicon Valley Bank
Of course, Jerome Powell, the Federal Reserve’s interest rate rise, is the primary cause of this crash. how? I’ll let you know.
This bank used to invest and make strong profits; as a result, the businesses it supports prosper and the bank’s assets grow.
What did the bank ultimately do with this cash? They started purchasing long-term government bonds with all of this cash because they are dependable. There is no question that this is an excellent investment.
But, when they acquired their bonds between the years 2019 and 2020, the interest on them was 1.6 and for lengthy durations, so you cannot collect them before this period because else fines will be levied and you will lose the money and more.
The interest rate was gradually increased by Professor Jerome Powell this year and the year before, reaching 4.75, with the chance that it would rise over 5% in the near future.
The bank is formally an investor in failing bonds. Due to rising interest as well as other factors, the IT and startup-related sector is also suffering. They all added to it, really.
The bank needed to keep its numbers good, so it was forced to sell the bonds and lose twice as much, because the buyer was initially expensive behind the interest, which means they had little profit on them and two losses on paper, and when they sold, they also imposed fines on them, meaning they lost double, meaning billions.
The crucial point is that the government regulators took over the bank and got all of the deposits because the company’s share price plummeted very frighteningly from about $300 to $100.
|Source: Tradingview.com / market summary during the SVB collapse|
The FDIC, or “Federal Deposit Insurance Corporation,” supports this claim. Up to $250,000 in existing deposits will be refunded to their owners.
The Nasdaq also dropped 200 points, while the Dow Jones Industrial Average dropped 300 points. It is true that the recent news is still fresh.
But, coverage of this story will pick up speed because if the bank handled $200 billion and then abruptly declared bankruptcy, it has significant implications for the whole stock market, cryptocurrency, and the US economy as a whole.
Could Another 2008 Global Crisis Occur?
What may happen now? Is it possible that another financial catastrophe like the one that occurred in 2008 will take place? Perhaps when the global financial crisis happened.
In addition, when banks fail “as happened in the collapse of Silicon Valley Bank“, a domino effect can emerge, affecting non-banks. But, this may prompt Jerome Powell, the Federal Reserve Director, to reconsider the problem of interest, as it appears that he did not compute it correctly. Rather, he may wish to create bankruptcy until an economic downturn comes.
So don’t be shocked if, instead of increasing by half a point, interest only climbs by a quarter of a percent at the next meeting, because he may be fearful of criticism now.
Because they can point fingers at him as a result of this massive collapse, and the government should pay this money to the bank’s clients if the bank is unable to do so.
This is the story, and it will evolve in the next few days, but think about it and do your study so that you can decide for yourself what to do after you have all of the facts.