SVB - The Cause, Effect & Result
Silicon Valley Bank (SVB) has been seized by regulators after a bank run caused by concerns about its capital position. The sudden need for fresh capital was triggered by deposit withdrawals as startup clients withdrew deposits to keep their companies afloat in a chilly environment for IPOs and private fundraising. By the end of Thursday, March 9th, customers withdrew a staggering $42 billion of deposits, according to a California regulatory filing. By the close of business that day, SVB had a negative cash balance of $958 million, according to the filing, and failed to scrounge enough collateral from other sources. Insured deposits were recently expected to be available, but the lion’s share of deposits held by SVB were uninsured, and it’s unclear when they will be freed up. Yikes!
Federal Reserve Chair Jerome Powell is expected to face questions about the bank's oversight failure in relation to the collapse of SVB, the largest bank failure since 2008. Regulators at the Fed Board in Washington allowed the bank to merge with a small bank in June 2021, months before Fed supervisors in San Francisco began to issue a volley of warnings about the company’s poor risk management. Powell will face questions regarding the failure of the examiners at the Federal Reserve Bank of San Francisco to flag risks aggressively enough, the Fed's board failing to follow up on noted weaknesses, and whether the lapse indicates a broader problem within bank oversight. Congress is also planning to investigate the bank collapse. The inquiry into Silicon Valley Bank is set to conclude by May 1.
As of March 27, 2023 - First Citizens BancShares is buying the assets and loans of SVB, with investors welcoming the deal and driving broader gains in banking shares. The Federal Deposit Insurance Corp, the US financial regulator, said First Citizens had bought around $72bn of SVB's assets at a discount of $16.5bn, making the bank one of the 25 most significant financial institutions. The FDIC estimated the cost of the SVB failure to its deposit insurance fund would be about $20bn and have led to concerns over the stability of the sector.
Who is responsible for this catastrophic blunder? I imagine the Fed will identify everyone who was complicit, whether knowingly or unknowingly. I believe there are multiple stakeholders to blame, what’s your sentiment?