The failure of Silicon Bank has delivered shockwaves through financial organizations across the country and the world at large. It’s been a long time since the world saw something so drastic, the last time being the 2008 financial crisis. Hence, the sudden fall of Silicon Bank has only left investors wondering what lies in store for them in the near and far future.
Now that the entire global tech industry is shaken, there are questions as to how this problem has affected crypto coins. The stock prices of smaller, regional banks are beaten, bond prices have fluctuated erratically, and more. Now, it’s been said that the U. S. has intervened—how and what does this imply?
Indeed, all this is too much to take in; therefore, in this post, we’ll be going through everything bit by bit. You’ll get to understand Silicon Bank, the effect of its collapse, and a glimpse into the future of crypto coins. Read on to the end so you won’t miss any important detail.
What is the Silicon Valley Bank?
Silicon Valley Bank (SVB) had been around for 40 years. Despite not being a megabank like Goldman Sachs or JPMorgan Chase, it had more than held its ground.
SVB served customers such as venture capital firms, businesses, and high-net-worth tech professionals. It carries out its basic operations from its base in Santa Clara, California. Established as a formidable competitor to more well-known financial institutions, it has expanded into the technological industry.
One can say that they really created a specialty that was the pride of the banking world. One could obtain all the goods and services that high-end financial institutions like venture capital and private equity firms require from them.
Roku, Roblox, and Vox Media were just a few of the tech and tech-related businesses that relied on their services. However, until March 2023, it was mostly unknown to people outside of the computer industry. Heads up: its near-total reliance on the technology industry ultimately proved to be its undoing.
What You Should Know About the Fall of Silicon Valley Bank | A Timeline of the Bank’s Sudden Demise
Below is a timeline of how the bank suddenly crashed to the ground in a span of 48 hours:
The Pandemic Period
Despite the pandemic, tech firms had caused a surge in business for Silicon Valley Bank. The bank had received assets worth over $100 billion from its satisfied clientele.
When interest rates were historically low in 2021, the SVB put billions of dollars into long-term U.S. Government notes. These bonds are guaranteed by the United States government and are usually accepted as a low-risk, low-reward financial option. Long-term bonds are safe until interest rates increase, but only if held to maturity to receive the entire payout.
Rise in Interest Rates
That’s precisely what the Federal Reserve did in 2022 when it started raising interest rates rapidly to combat rising prices. As interest rates go up, the value of state assets such as those owned by SVB falls.
The issue was that, being long-term interest rates, they weren’t worth their face value. The interest rate increased. They discounted them because they had to move them quickly. If only the top management had spoken up, the entire circumstance might have been avoided. They needed to show their notice of the changes in interest rates.
Still, as long as SVB had no immediate need for the funds, this was fine. However, the entire technology industry had also recently experienced a downturn. Businesses, in turn, were pulling their money out of the bank in growing numbers.
Ultimate Fall of SVB
Last week (as of March 2023), SVB announced that it had to liquidate $1.8 billion in bond securities. Its plan was to cover the losses incurred from those transactions. Clients were so alarmed by the news that they began pulling money out of SVB, ultimately leading to a bank run.
On Thursday, March 9, In 2023, customers rushed to remove a total of $42 billion in deposits. As a result, SVB saw a 60% decline in its share price.
The bank run at Silicon Valley Bank (SVB) on March 10, 2023, caused the biggest bank collapse in the United States. The event is the second largest in America’s history and the first since the economic turmoil of 2008.
The collapse of SVB has had a significant impact on many businesses in the United states of America and the world at large. These companies have been unable to access their funds. The FDIC had seized control of SVB by Friday lunchtime.
How Much Damage has the Silicon Valley Bank Caused?
SVB is a global bank with branches scattered around the globe in countries like; United Kingdom, China, Germany, Canada, India, Sweden, Israel, and Denmark. However, its main location remains Santa Clara, California.
When the news broke, many governments jumped straight into action over the weekend to commence evaluating the situation. However, the complete amount of exposure and harm is still unknown. Here are some effects that have sprung up in some major countries:
A large number of Chinese biotech companies are among those that have been working feverishly to calm their nervous clients. One prominent Chinese company working on cancer therapies, BeiGene, recently revealed that $4 million, or roughly $175 million, is stuck at SVB.
SPD Silicon Valley Bank, a China-based joint venture of SVB, declared over the weekend that its activities are “stable” and “autonomous.” In the meantime, other companies are looking for non-traditional financing options.
Tech companies and businesses in the life science sector numbering about 16 based in Europe have a total of $190 million exposed by the SVB saga. Banks in the Eurozone face little threat, according to EU experts, but that hasn’t prevented the markets from falling.
Canada’s finance superintendent said in a statement that authorities there had set up an SVB office to safeguard the interests of creditors. AcuityAds, a Toronto-based ad tech company, recently revealed that it had nearly all of its assets, totaling around $55 million, in SVB.
According to TechCrunch, the US startup incubator Y Combinator (YC) funds more than sixty Indian companies. These startup companies have over $250,000 in SVB, and many more have over a million dollars. The state minister of technology stated in a social media post that he will visit startups in the coming week to better understand their plight.
Benjamin Netanyahu, the prime minister of Israel, has promised to evaluate the damage. According to the Israeli business newspaper Globes, SVB’s failure has been like “closing the oxygen conduit” to the country’s tech industry. Apparently, there are massive links to the Silicon Valley bank.
After the United States intervenes in SVB’s fall, major crypto coins stabilize
The failure of SVB raised the likelihood of triggering a major financial crisis. However, the U.S. government took urgent action on Sunday to reestablish public confidence in the banking industry. On March 13, 2023, customers of the failed bank were promised access to their assets.
From a new low of $0.87 on Saturday, USD Coin (also known as USDC) has recovered to $0.998. Though this is an increase from the previous day, it’s still far below its planned peg of 1:1 against the dollar. Concerns about the vulnerability of Circle, the American company that distributes USDC, to SVB triggered the decline.
Jeremy Allaire, CEO of USDC issuer Circle, reached out to the public via a tweet on March 13, 2023. He tweeted on Sunday that the firm’s $3.3 billion USDC reserves account with SVB would be completely accessible soon. With the help of their new collaboration with Cross River Bank, “Circle’s USDC activities will open for business,” Allaire declared. However, Cross River, located in New Jersey, did not quickly provide a comment.
By market capitalization, USDC is the second-largest stablecoin. It is a necessary component of the crypto trading environment. They are created to maintain a constant worth and are usually supported by reserves of conventional commodities like dollars, bonds, or gold. Many stocks with cryptocurrency ties also saw gains.
U.S. cryptocurrency broker Coinbase Global grew by 6.3%. Marathon Digital and Riot Blockchain, two other cryptocurrency makers, earned more than 11%.
While the United States has taken action, market analysts have cautioned that investor confidence will stay low. As per Alvin Tan, director of FX strategy at RBC Capital Markets in Singapore, marketplaces are still unsettled following the SVB fall. Despite the evolving situation, uncertainty is predicted to stay elevated in the days ahead.
Bitcoin, the largest cryptocurrency by market cap, rose 6% to $23,350. This represents an increase of more than 13% from the previous day’s low points.
New York’s top financial supervisor seizing a key financing company for crypto firms dampened the market’s agitation. Three of the major U.S. banks utilized by crypto companies such as online casinos have collapsed this year.
One can imagine how anxious people have become and how troubled investors are. At this rate, human reactions to these turmoils are more than enough to keep affecting how the market flows. Presently, one cannot evaluate the damage this has caused, but we can all hope for the better.