Two major US banks, Silicon Valley Bank (SVB) and Signature Bank, have collapsed. This is the second-largest banking failure in US history, after the 2008 collapse of Washington Mutual Bank. The collapse is attributed to a combination of factors, including the COVID-19 pandemic, which led to a surge in investment in software companies, and the subsequent increase in interest rates by the US government to control inflation. SVB, which had invested heavily in these companies, suffered significant losses when the interest rates increased, causing the value of its bonds to plummet. The bank's customers, mostly startups, began withdrawing their deposits, further exacerbating the bank's financial woes.
The US government has intervened, with the Federal Deposit Insurance Corporation (FDIC) taking over the bank's assets and creating a new bank to ensure continuity of business activities. The government has also assured that deposits, including those above the insured limit, will be protected. The collapse has had a significant impact on the stock market, with US banks losing over $100 billion in value and European banks losing around $50 billion.
The collapse of SVB has also affected Indian startups, with several founders and companies having deposited their money with the bank. The impact on the global economy is still uncertain, but experts believe that it is unlikely to lead to a global financial crisis, as SVB's customers were largely from a specific sector.
Here are the key facts extracted from the text:
1. Silicon Valley Bank (SVB) and Signature Bank, two of America's major banks, have collapsed.
2. This is the second-largest banking failure in American history, after the 2008 collapse of Washington Mutual Bank.
3. The 2008 collapse was followed by a global recession.
4. SVB was established in 1983 and was headquartered in Santa Clara, California.
5. In the early 1990s, SVB invested heavily in the real estate industry, with 50% of its portfolio in real estate.
6. In 1992, California's real estate market crashed, causing SVB to incur a loss of $2.2 million.
7. After 1995, SVB diversified its portfolio, with the real estate business contributing around 10%.
8. In the 2000s, SVB became known for investing in technology-based startups.
9. By 2015, SVB had expanded significantly, serving 65% of all startups in America.
10. In 2021, startups raised a record $330 billion in funding, with SVB being the primary bank for many of these startups.
11. SVB's deposits increased by 100% between 2020 and 2021, with the bank holding $124 billion in deposits in March 2021.
12. SVB invested heavily in government bonds, which is considered a relatively safe investment.
13. However, the value of these bonds decreased when interest rates increased, causing SVB to incur significant losses.
14. In 2022, SVB's customers, mainly tech startups, began withdrawing their deposits to meet their financial needs, causing a liquidity crisis for the bank.
15. SVB sold $21 billion worth of bonds at a loss of $1.8 billion to avoid a downgrade.
16. The bank's shares fell by 60% on March 9, 2023, after the news of the bond sale became public.
17. The American government increased interest rates to control inflation, which contributed to SVB's financial difficulties.
18. The Federal Reserve increased interest rates to control inflation, which made borrowing more expensive for startups and reduced their ability to take loans.
19. SVB's failure was not due to any scam or fraud but rather bad decision-making and bad luck.
20. The American government has assured that deposits made with SVB would be safe, including uninsured deposits.
21. The collapse of SVB has had a significant impact on the stock market, with US banks losing over $100 billion in value and European banks losing around $50 billion.
22. Several companies, including Roku Inc. and Y Combinator, have lost significant value due to their deposits with SVB.
23. The collapse of SVB has also affected several Indian startups and founders who had deposited their money with the bank.
24. The Indian government had taken similar measures to safeguard deposits when PMC Bank crashed in 2019.
25. Experts believe that the current situation is unlikely to lead to a global financial crisis, as SVB served a specific sector, and regulators have imposed stricter regulations since the 2008 crisis.