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16-03-2023, 08:33 AM
A guide to the Silicon Valley Bank collapse
#Econgram_Business
Facts:
1) On the 10th of March, the SVB was closed and taken under control by the Federal Deposit Insurance Corporation (FDIC)*.
2) That happened after the bank sold all the available-for-sale bonds* owned, followed by an announcement that it needed an additional $2.5bn in capital*.
3) Moreover, many other worldwide banks’ stocks declined in value.
Analysis:
1) During the last three years, banks preferred investing in illiquid fixed-income securities* to lending to companies and households. That is because present and past macroeconomic conditions were significantly increasing the credit risk* of loans. Besides, fixed-income securities with long-term maturities* were very profitable when interest rates were low.
2) However, recently, the FED* raised interest rates. Hence, the present values* of securities dropped, leaving SVB with many losses. As a result, investors and depositors became concerned about the bank’s financial health and rushed to withdraw their money. That bank run* provoked SVB’s failure.
3) Besides, it led to a decline in other banks’ stocks. Presently, more and more investors believe that the balance sheets* of financial institutions are hit by the FED’s policies.
#Econgram_Business
Facts:
1) On the 10th of March, the SVB was closed and taken under control by the Federal Deposit Insurance Corporation (FDIC)*.
2) That happened after the bank sold all the available-for-sale bonds* owned, followed by an announcement that it needed an additional $2.5bn in capital*.
3) Moreover, many other worldwide banks’ stocks declined in value.
Analysis:
1) During the last three years, banks preferred investing in illiquid fixed-income securities* to lending to companies and households. That is because present and past macroeconomic conditions were significantly increasing the credit risk* of loans. Besides, fixed-income securities with long-term maturities* were very profitable when interest rates were low.
2) However, recently, the FED* raised interest rates. Hence, the present values* of securities dropped, leaving SVB with many losses. As a result, investors and depositors became concerned about the bank’s financial health and rushed to withdraw their money. That bank run* provoked SVB’s failure.
3) Besides, it led to a decline in other banks’ stocks. Presently, more and more investors believe that the balance sheets* of financial institutions are hit by the FED’s policies.
