What is Silicon Valley Bank and why are you worried about its bankruptcy?

barracks of Silicon Valley Bank (BLS) are located in Santa Clara (California, United States). Founded in 1982, during the game of poker, it has become one of the most important entities in the country, providing venture capital services technology companies tips. More than 30,000 companies left his hand until this Friday.

The US authorities were forced to suspend its listing and urgently intervene in the bank, after it suffered a huge outflow of deposits and was pushed into bankruptcy, which led to the second largest bank failure in US historyafter Washington Mutual (WaMu) in 2008 – he had assets of 307,000 million dollars -, the year of the outbreak of the financial crisis.

What caused his collapse?

On Thursday, April 9, the value is bank it sank on the stock exchange (Nasdaq) by 60%. Investors tried to get their money when they learned that the entity is forecasting losses of around 1,704 million euros in the first quarter of 2023 alone. Its executive management tried to urgently issue new shares, cover these losses and clean up its position, but far from solving its problems with liquidity, were aggravated this Friday by a stampede that saw the Federal Deposit Insurance Corporation intervene and take control of their assets to guarantee the savings deposited, which they explained would be available next Monday.

Venture capital firms such as Peter Thiel’s Founders Fund advised their clients to withdraw money, according to Bloomberg. They were joined by Coatue Management, Union Square Ventures and Founder Collective.

What caused the losses?

To lose that much money in just three months, something serious had to happen. And so it was. According to Financial Timesin full technological bloom, Silicon Valley Bank (SVB) has decided to invest more than EUR 85,000 million of the bank’s deposits in long-term assets, such as mortgage bonds and US government bonds.. At the time it was considered a good operation, but now its assets are worth 14,000 million euros less, after the decision of the Federal Reserve to rapidly increase the price of money, putting in debt problems and calling into question the solvency of other banks that followed the same strategy.

Is it the new Lehman Brothers?

First of all, because it deals with commercial banking. Lehman Brothers It was dedicated to investment banking with complex speculative schemes and much higher levels of indebtedness, so the assumed risks were higher. This does not mean that it will not have serious consequences. Its decline indicates possible problems in the banking system: «They depend on the country’s economy. If they lose money, it means that the situation in that country is complicated,” explains BBVA. If employment and activity are going well, what exactly is happening in the United States? This activity slows down and inflation it no longer reacts to strong climbs Interest rates determined by the Federal Reserve (Fed). There is a fear of entering a prolonged period of high prices that could ultimately lead to closures and mass layoffs. And that’s what drives the contagion effect.

Will the bankruptcy spread to other banks?

That’s a big unknown. Namely, in one day the four largest banks (JPMorgan Chase, Citigroup, Wells Fargo and Bank of America) lost 49,000 million euros. Your bankruptcy could have consequences for the economy. Silicon Valley Bank (SVB) is the bank that serves the half technology companies and US biotech venture capital firms and also offers loans to industry. Its closure can shake up that entire ecosystem technology, the most picturesque in the world.

The earthquake was not only recorded in the United States. The public intervention of the financial entity dragged down a number of the world’s major stock markets, with banks leading the losses. He IBEX 35 was no exception (-1.47%). He Sabadell led losses (5.11%), followed by banker (4.22%), Santander (4.21%) i BBVA (3.41%).

In Germany, the DAX fell by 1.31%, s German bank sinking 7.35%. In London Square, Lloyd’s Bank The rest is 3.27%, slightly more than barclays (3.67%).

“The problem is that there is now a fear of withdrawing customer deposits, the risk of a possible liquidity crisis and a contagion effect on the sector,” Bankinter analysts told Colpisa.