Recently, the global exchange rate market is extremely unstable, in addition to the impact of the Federal Reserve interest rate hike, there is a sensational global event — in just 48 hours, Silicon Valley Bank (SVB) collapsed, the biggest bank failure since the 2008 financial crisis. Panda gives you a detailed look at the causes and impact of this event.

Founded in 1983, Silicon Valley Bank (SVB) is a mid-sized bank focused on tech financing start-ups. By the end of 2022, SVB was the 16th largest bank in the United States, with total assets of $209 billion and total deposits of about $175.4 billion. Despite this, it fell into bankruptcy in just two days.

What happened?

Liquidity Crisis

On the one hand, the financing difficulties in US' tech freeze caused the high-tech and VC groups served by SVB to be hit, so lots of enterprises were desperate for cash and were constantly withdrawing deposits from SVB. As a result, SVB suffered severe  liquidity crisis.

Interest Rates Hikes

On the other hand, SVB bought large amounts of long-term mortgage-backed securities and Treasury bonds issued by U.S. government in the era of ultra-low, near-zero interest rates in early 2020, and kept zero reserves to stimulate economy. However, interest rate hikes by the Fed in 2022 caused bond prices to fall sharply. On March 8, SVB had to take a $1.8 billion after-tax loss as it tried to sell bonds to raise its capital ratio, which was the trigger of this bankruptcy.

This self-rescue effort was seen by Wall Street as a panic asset sale and a sharp dilution of equity and provoked a wild bank run by depositors. On March 9 alone, depositors tried to withdraw more than $42 billion from SVB, one of the biggest runs on the US bank in more than a decade and driving SVB into bankruptcy.

On the morning of March 9, the bank's stock began tumbling, and in the afternoon， other banks' stocks also fell. By the morning of March 10, the shares of SVB down by its daily limit, and SVB gave up its efforts to quickly raise money or find a buyer. The California Department of Financial Protection and Innovation (DFPI) announced the closure of SVB due to "insufficient liquidity and insolvency" and designated the Federal Savings Insurance Corporation (FDIC) as the receiver.

Subsequent Impact

Money？

According to the news of the Federal Reserve website, the US Treasury Department, the Federal Reserve and the FDIC issued a joint statement on March 12 that depositors can withdraw all of their funds from Monday, March 13. Any losses related to the bankruptcy of SVB will not be borne by the taxpayers.

Stock Market Crash

Global stock market plummeted stocks plummeted on Monday, although the U. S. Treasury Department, the Fed and the FDIC combined to secure the deposits of all depositors at SVB and New York Circle Bank Signature Bank.

On March 13, San Francisco-based First Republic Bank (FRC, $31.21, market value of $5.709 billion) fell nearly 79% in the market, down nearly 62% by the close, the biggest one-day drop since listing.

Follow-up Investigation

With the lightning collapse of SVB, the follow-up investigation is under way. On March 13, the Fed said it would investigate its regulation of SVB and released the results on May 1, which Vice Chairman John Barr would lead.

Financial Crisis?

After the collapse, governments quickly took measures to strengthen supervision activities and promised to take timely measures to stabilize the market.

"Historically, Fed tightening cycles have often triggered global economic and financial risks, and this Silicon Valley bank collapse could be a warning." Haitong Securities Research report pointed out that at present, the SVB event related risks or controllable, the current US economy as a whole is still resilient, whether there are risks in the future still need to be further observed.

Look from another point of view, the collapse of SVB may be a constraint on the Fed's next interest rate hike, and the exchange rate of USD may be fell, which is beneficial to the exchange rate market.

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