Spectacular Silicon Valley Bank Failure Shakes Finance

The US government is taking the bankruptcy of US-based Silicon Valley Bank (SVB) very seriously. The challenge is to keep the rest of the banking system from getting infected, US Treasury Secretary Janet Yellen said Sunday, but ruled out bailing out the establishment. “We want to make sure that problems affecting one bank don’t infect others that are more solid,” the US Treasury Secretary told CBS.

Recall that the Deposit Guarantee Agency (FDIC), an offshoot of the US government, on Friday took control of Silicon Valley Bank, which was on the verge of an explosion due to massive withdrawals of funds from its customers. While the big banks have been spared so far, a few medium-sized or regional institutions went bankrupt on the stock market on Friday, fleeing because of worried investors.

In particular, this applies to the first California Republic, which has fallen almost 30% in two sessions, Thursday and Friday, or Signature Bank, which has fallen by a third of its value since Wednesday evening. Both institutions have a large proportion of companies in their client portfolios whose deposits often exceed the maximum FDIC insured amount, or $250,000 per depositor, which can lead them to withdraw their funds.

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Janet Yellen explained on Sunday that the government was working with the FDIC this weekend to “resolve” the SVB situation, of which approximately 96% of deposits are not covered by the FDIC’s money back guarantee. “I’m sure the (FDIC) is considering a wide range of solutions, including an acquisition” by another bank, the finance minister said.

For his part, Virginia Democratic Senator Mark Warner assessed on ABC Sunday that an announcement on Sunday of a takeover of SVB by a financial institution before Asian markets open would be “the best thing to do.” Futures contracts for the flagship indexes of the Tokyo and Hong Kong stock exchanges suggested a decrease of just under 2%.

No public assistance at this stage

Janet Yellen, on the other hand, ruled out bailing out the SVB with an infusion of public money. “During the financial crisis (2008), investors in large systemically important banks, the fall of which, according to the authorities, would pose a risk to the entire financial system, “were saved” by the US government, she said. “We’re not going to do it again.”

Thus, in September 2008, to avoid the collapse of the financial system, the American authorities poured hundreds of billions of dollars into most of the big names in the market, funds that the government then returned. Since Friday, several figures in finance and the world of new technologies have been pleading for help from the SVB.

Because, in addition to the stability of the banking system, many say that they are worried about the consequences of the SVB bankruptcy on the technology sector, both American and not only. SVB boasted that its clients were “nearly half” of the technology and life sciences companies funded by US investors. “Many of the contributors are small businesses that need to have access to their funds to pay their bills and employ tens of thousands of people” in the United States, Ms. Yellen said.

“This is a problem and we are working with regulators to find a solution,” she continued.

On Sunday, UK Treasury Secretary Jeremy Hunt said the fall in SVB posed a “serious risk” to Britain’s tech sector. In recent hours, several entrepreneurs have also warned of a possible shock wave for Indian tech startups, some of which were SVB clients.

The turmoil of the SVB saga has also spread among cryptocurrencies. Thus, the USDC digital currency, called “stable” because it is theoretically pegged to the dollar, has fallen since Friday after its creator, Circle, announced that it had left $3.3 billion in the SVB’s treasury. Cryptocurrency investors, amid the legendary volatility of this industry, have also stalled, for example, Dai or USDD.


Cryptocurrency: USDC Suffering from SVB Bankruptcy

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