Friday was supposed to be about the February jobs report and its impact on Fed rate hikes — but SVB Financial Group (NASDAQ: SIVB) stole the show.
Financial regulators closed the nation's 16th largest bank, a mere two days after the company raised capital and sold assets below cost. The FDIC's swift takeover of a bank that had $209 billion in assets at year end marked the biggest U.S. bank failure since Washington Mutual was seized in September 2008.
Silicon Valley Bank's demise dealt a devastating blow to venture capital (VC) groups who represented a major part of the bank's client base. VC's were already hurting from higher rates and an IPO market slowdown that made it harder to raise funds.
It is also a dagger for shareholders who had seen $500 slashed from SVB's share price since November 2021. Trading in the stock was halted on March 10th, 2023 after it plunged 60% the previous day. Wall Street research group Maxim then commented that SVB stock has "likely no value."
The ripple effects are expected to go beyond those that had close ties to SVB. For starters, there is likely to be more intense regulatory scrutiny of regional banks regardless of size or stature. As government officials sift through the wreckage, steps to enact new legislation that prevents similar collapses will likely follow.
How Did the SVB Financial Meltdown Occur?
Soon before the FDIC stepped in, SVB was forced to sell most of its available-for-sales securities at a loss to offset a drop in customer deposits. It announced a $2.25 billion capital raise to offset the situation but it was too little too late. How did things even get to this point?
Silicon Valley Bank had been in business for 40 years as a lender to some of the technology sector's biggest companies. But that didn't make it immune to economic pressures.
Customer deposits tripled from 2018 to 2021 when interest rates were low and tech startups were cash-rich. But when rates soared in 2022, the VC market slowed to a crawl as did deposit activity at SVB. Things were made worse when the bank invested what funds it did receive in bonds that would later lose value as rates climbed.
In the end, it was SVB's decision to invest a high portion of customer deposits in bonds and mortgage-backed securities (MBS) that quickly deteriorated in value. Things reached a boiling point after the bank suffered a nearly $2 billion loss from selling securities and turned to the capital markets for help. VC funds advised companies to pull their SVB deposits, setting the stage for the stock selloff and regulatory intervention.
SVB Financial held more than $175 billion in deposits heading into the new year. Last week, Silicon Valley customers were left wondering how much, if anything, they'll be able to retrieve beyond the FDIC's $250,000 guarantee. They'll have to wait to know when SVB sells what's left of its assets.
The event has raised concerns among depositors at other banks. Fears of contagion, i.e. the SVB meltdown spreading to other banks, are naturally rising. If these fears reach all-out panic mode, we could see a run on certain U.S. banks with people lining up at branches and ATMs to obtain their hard-earned cash.
Another concern relates to new deposit activity. The newfound uncertainty in the banking sector could cause many Americans to pause future deposits and stuff money under mattresses instead. While extreme and unlikely, it is a scenario that's plausible considering banks compete with surging Treasury yields for deposits.
The current yield on a 6-month Treasury bill is roughly 5.08%. Bankrate's latest survey shows the nation's average savings account yields 0.23%. The SVB story may just be the breaking point for individuals and businesses fed up with low deposit rates.
How Did Other Bank Stocks React to the SVB News?
The SVB headlines had an interesting effect on bank stocks. Initially, contagion fears caused a broad selloff in regional banks, especially those of similar size to SVB. Citizens Financial Group, State Street and Fifth Third Bancorp all fell every day last week. The SPDR S&P Regional Banking ETF (KRE) was down 16% for the week to a two-year low.
Then came a reality check.
Despite SVB's shocking collapse, U.S. banks are in far better financial health than they were during the 2008-2009 financial crisis. A series of regulatory rules and regular stress tests have bank balance sheets littered with reserves and risk measures to avoid deja vu.
This is why several Wall Street analysts were quick to come to the sector's defense. Wells Fargo viewed the selloff in mid-cap banks as an overreaction and reiterated bullish sentiment on several names. Citigroup called the pullback an opportunity and added Comerica to its Focus List.
Large cap banks that have more diverse funding sources, lower credit risk and ample capital were quicker to recover. JPMorgan Chase, the country's largest bank, rebounded 2.5% in heavy volume on Friday.
Bank stocks of all shapes and sizes are likely to remain volatile after the SVB collapse. U.S. banks will be in the regulatory spotlight while U.S. investors will be trying to determine if the return potential is worth the industry's elevated risk profile.
Silicon Valley Bank (SVB) is a commercial bank division of First Citizens BancShares. The bank was previously the primary subsidiary of SVB Financial Group, a publicly traded bank holding company that had offices in 15 U.S. states and over a dozen international jurisdictions.
https://en.wikipedia.org › wiki › Silicon_Valley_Bank
for financing. Without access to capital, these companies could struggle to survive. Additionally, the collapse of SVB could make it more difficult for new startups to raise money if other banks become more cautious about lending to tech companies.
Ritesh Kumar, director of procurement and supply chain intelligence at The Smart Cube, details the significant changes brought about by the failure include increased competition in banking deposits between regional and incumbent organisations, smaller banks facing challenges with interest rates and deposits, and real ...
After the stunning collapse of Silicon Valley Bank, nervous depositors are finding comfort in the arms of the nation's biggest lenders. Mega banks including JPMorgan Chase and Citi are seeing a rush of new clients, outlets including Bloomberg, the Financial Times and the New York Post report, citing anonymous sources.
After the collapse of SVB and Signature Bank, record levels of deposits poured into Bank of America, JPMorgan Chase and Citibank from mid-size and regional banks. First Republic Bank reported that its total deposits fell 41% in the first quarter, to $104.5 billion.
Consulting firm Klaros Group analyzed about 4,000 U.S. banks and found 282 banks face the dual threat of commercial real estate loans and potential losses tied to higher interest rates. The majority of those banks are smaller lenders with less than $10 billion in assets.
Pandemonium broke loose in the banking world when Silicon Valley Bank collapsed earlier this month and sparked a chain reaction of similar failures, including Credit Suisse, First Republic Bank, Signature Bank, Silvergate Bank and others. Hundreds of banks remain at risk of the same fate.
It indicates an expandable section or menu, or sometimes previous / next navigation options. Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.
Based on the analysis of Bank of America's financial health, risk profile, and regulatory compliance, we can conclude that the bank is relatively safe from any trouble or collapse.
Goldman Sachs acted as both the buyer of SVB-held bonds and the architect of failed efforts to raise capital for the bank, raking in profits and fees even as SVB was seized by the Federal Deposit Insurance Corporation (FDIC) in a failure that cost the Federal Deposit Insurance Fund $20 billion and caused 'macro ripples ...
Even shares of big banks lost ground in the aftermath of the SVB and Signature collapses, including Wells Fargo, JPMorgan Chase and Citigroup. Some worried customers of various regional banks nationwide rushed to withdraw their deposits on March 13, The New York Times reported.
The largest bank failure ever occurred when Washington Mutual Bank went under in 2008. At the time, it had about $307 billion in assets. During the uncertainty of the banking crisis, however, Washington Mutual experienced a bank run where customers withdrew almost $17 billion in assets in less than 10 days.
Many companies faced losing large amounts of cash. The Biden administration approved an extraordinary intervention, stating all depositors at the failed Silicon Valley Bank would have access to all their money.
Most deposits in banks are insured dollar-for-dollar by the Federal Deposit Insurance Corp. This insurance covers your principal and any interest you're owed through the date of your bank's default up to $250,000 in combined total balances. You don't have to apply for FDIC insurance.
WASHINGTON (TND) — The U.S. had its first bank failure of 2024 with federal regulators seizing control of Pennsylvania-based Republic First over the weekend, which comes a year after a string of larger regional banks collapsed in spectacular fashion and fueled fears of a run on deposits and shook faith in the financial ...
When a bank fails, the FDIC or a state regulatory agency takes over and either sells or dissolves the bank. Most banks in the US are insured by the FDIC, which provides coverage up to $250,000 per depositor, per FDIC bank, per ownership category.
While the crisis most directly affected the regionals, major U.S. financial institutions for most of 2023 also found their stocks under assault. Big banks, like Club holding Wells Fargo , were largely able to turn the corner. The question is still out on the smaller lenders.
A wobbly U.S. financial system may well do the trick. Top economists say the collapse of Silicon Valley Bank (SVB) and broader risks to the financial system will lead the Fed to raise interest rates by no more than a quarter percentage point next week, and some experts expect the central bank to pause.
The bank lost scores of customers, many of whom frantically pulled their money out over a chaotic few days last year in a bank run that shocked the tech industry and triggered a government rescue. Hundreds of employees were laid off, while others left voluntarily, taking their customers to competing banks.
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