The Financial Fallout: Silicon Valley Bank Collapse

This blog discusses the recent collapse of Silicon Valley Bank where we discuss the reasons behind the downfall, how it impacted global finances and the ripple effects on other economies. We also highlight the key updates on the situation, including reactions from investors, regulators, and financial institutions. So, without any further ado, let's delve deep into the fall of SVB.
Introduction:
The collapse of Silicon Valley Bank (SVB) and Signature Bank (SB), which is considered the second-largest bank failure in US History, has sent ripples through the global financial system, causing widespread concern about the stability of the banking sector. On the 10th of March, the US regulators closed the SVB and took control of its deposits (around 175 Billion USD) under the FDIC (Federation Deposit Insurance Corporation's Control). This has resulted in depositors withdrawing their savings and investors selling off bank shares, resulting in a market value loss of $465 billion so far. As per the reports, the fall of the SVB has been marked as the largest failure of a financial institution since Washington Mutual collapsed in 2008. But this time, we need not worry as experts say that this situation won't lead to a financial crunch, which happened in 2008 as the operations of the SVB were limited to the Venture Capitalist (VC) backed companies & Technology Sector.
Reasons for the downfall
The Bearish nature of the shareholders in the Tech sector and the Federal Reserves lead to an increased rate of interest in order to combat inflation. This was the major aspect that heavily impacted the SVB. It is also known that during this time, the SVB had invested in bonds. As a result of the increase in interest rates and the decline in the bond value, the SVB started witnessing major losses on its long-term bond holdings.
The Ripple Effect
The MSCI Asia Pacific Financials Index has dropped 2.7%, with Japan's Mitsubishi UFJ Financial Group down 8.3%, South Korea's Hana Financial Group down 4.7%, and Australia's ANZ Group Holdings losing 2.8%. Despite regulators' efforts to reassure investors that the banking system is secure, concerns about spillover risks from the Silicon Valley Bank's collapse have led to widespread sell-offs in bank stocks.
Assurances from the US Government
US President Joe Biden has insisted that the banking system is secure, and regulators have guaranteed all deposits at the two failed banks, as well as created a program to protect other banks from runs on deposits. However, this has not prevented investors from dumping bank shares, with First Republic Bank closing down over 60% even after receiving emergency funding from the Federal Reserve and JPMorgan Chase.
Market Reactions
The Indian rupee has fallen 4 paise to 82.27 against the US dollar, tracking losses in Asian equities and currencies. Oil prices have also slipped, with Brent Crude futures falling to their lowest level since early January and WTI dropping to its lowest level since December. Meanwhile, gold prices have held above the $1,900 per ounce level, as expectations of less-aggressive Federal Reserve rate hikes have provided some support.
Takeaways
The collapse of Silicon Valley Bank and Signature Bank has highlighted the fragility of the global financial system and raised concerns about the stability of the banking sector. Despite regulators' efforts to reassure investors, widespread sell-offs in bank stocks and other asset classes suggest that confidence remains fragile. It remains to be seen whether the government's rescue plans will be sufficient to restore stability to the financial system and prevent further fallout from the collapse of these two banks.
Conclusion
The collapse of Silicon Valley Bank and Signature Bank has had a significant impact on global finances, causing widespread concern about the stability of the banking sector and resulting in depositors withdrawing their savings and investors selling off bank shares. While regulators have taken steps to reassure investors and protect other banks from runs on deposits, the market reaction suggests that confidence remains fragile. It is unclear how the situation will unfold in the coming days and weeks, but it is clear that the fallout from these bank failures will have far-reaching implications for the global financial system.
As investors and regulators continue to respond to the situation, it is important to stay informed and updated on the latest developments. Thank you for reading this blog, and I encourage you to share this knowledge with your friends and family. Image Source: Unsplash.

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