Silicon Valley Bank first act of general crisis

Bankruptcy of Silicon Valley (SVB), occurred on March 10, it was a shocking event, not least because this bank was the sixteenth largest bank in the United States. Its collapse meant the second largest in History of the United Statesas well as the largest since the crisis of 2008. Understanding its origins and its impact is fundamental to understanding reality and its future.

First of all, it should be noted that bank attack on SBV It is happening amid global financial fragility, marked by dangerous levels of public and private indebtedness, expressed globally by a debt-to-gross domestic product ratio of 350.0%. Any large enough disruption of credit flows can lead to a very deep global financial crisis. To this must be added the current high risk of a major recession as a result of European Union policies United States Federal Reserve.

In this context starting from the fact that SVB was specialized in providing credit and deposit services to technology companies, including the so-called Indeed, like says José CastilloIn the beginning, this bank had a high level of business, giving these companies loans in the amount of 300,000 million dollars. However, later on they were not as profitable as expected as a whole, so they began to decline.

In view of this, the bank’s portfolio increasingly turns to the purchase of bonds, the price of which begins to fall with successive increases in the interest rate due to Federal Reserve. fragility yes it is products in this financial institution This becomes apparent when he announces that he has already had to sell a significant number of securities in his holdings at a loss, and that he planned to sell some $2,250.0 million in new shares. This is how alarms go off among depositors, who decide to withdraw their deposits, generating a a typical bank run.

Some economists, such as The case of Paul KrugmanThey saw in all this a relatively isolated event, which could not lead to a systemic problem. This is a wrong point of view, since the bankruptcy of SVB had contagion effects, which led to the need to bail out depositors (USD 151,000 million), as well as measures Swiss Central Bank try to stabilize Credit Suisse ($54,000 million). A bank depositor was added to that First Republic Bank (30 billion USD), as well as new Federal Reserve loans to support bank liquidity (USD 164,800 million).

Other economists, including Joseph Stigliswith reason they claimed the lack of adequate banking regulation. banking deregulationpromoted by the interests of financial capital, allowed, among other things, that banks like Silicon Valley, They will operate with a reserve of only 5.0% of their deposits and will reach a leverage level of 7.96.

It is clear that in bankruptcy Several factors were at work in Silicon Valley: rising interest rates, lack of regulation and an element associated with the bubble. He himself, of course, had clear signs of infection, which, for the time being, faced a high price. This does not mean that this phenomenon cannot be reproduced on a larger scale in the near future, creating a crisis. Financial capital is in contradiction or enables a higher level inflation, postponing the crisisor causes it immediately.