US authorities take control of SVB bank

Little known to the general public, the SVB was nevertheless the 16th American bank by the size of the assets.

The sudden rout of Silicon Valley Bank (SVB), which was shut down by US authorities on Friday, has created a wave of panic in the banking sector, and the markets have wondered about the consequences of the largest bank failure in the United States since the financial crisis of 2008.

The bank could no longer cope with the massive withdrawals of its customers, mainly technology players.

The American authorities therefore took official possession of the bank and entrusted its management to the American agency responsible for guaranteeing deposits (FDIC).

US Treasury Secretary Janet Yellen summoned several finance industry regulators on Friday to discuss the situation. She reminded them that she had full confidence in their ability to take the appropriate measures and believed that the banking sector remained resilient.

Little known to the general public, SVB had specialized in financing emerging companies and had become the 16th largest American bank by the size of assets. At the end of 2022, it had US$209 billion in assets and around US$175.4 billion in deposits.

Its demise not only represents the largest bank failure since that of Washington Mutual in 2008, but also the second largest failure of a retail bank in the United States.

Outside the bank's headquarters in Santa Clara on Friday, a few nervous customers wondered how they could access their funds, some trying to guess what was going on through the closed, glass doors. On the door, a paper from the FDIC indicated that they could, starting Monday, withdraw up to $250,000.

This is not not good. A lot of the biggest [venture capitalists] have really high deposits here, noted a client who didn't want to give his name. The owner of a start-up company, he used the bank to pay his employees and is worried about them.

In the markets, the panic movement began on Thursday, after SVB announced that it was seeking to quickly raise capital to face the massive withdrawals of its customers, without succeeding, and having sold for 21 billion dollars. financial securities, losing $1.8 billion in the process.

The announcement surprised investors and rekindled fears about the strength of the entire banking sector, especially with rapidly rising interest rates driving down the value of bonds in their portfolios and increases the cost of credit.

The four largest US banks lost $52 billion on the stock market on Thursday and, in their wake, Asian and then European banks faltered.

In Paris, Societe Generale lost 4.49%, BNP Paribas 3.82% and Crédit Agricole 2.48%. Elsewhere in Europe, the German bank Deutsche Bank dropped 7.35%, the British Barclays 4.09% and the Swiss UBS 4.53%.

On Wall Street, the big banks rallied on Friday after the rout of the previous day: JPMorgan Chase took 2.5% at the end of the session while Bank of America and Citigroup lost less than 1%.

Medium-sized banks or more focused on one type of customer were more in turmoil, for example, First Republic dropping nearly 15% and Signature Bank, close to the cryptocurrency community, 23%.

As is often the case in finance, the problem did not come from where it was expected, explains Alexander Yokum, of the firm CFRA. Many observers wondered about the debt piling up on credit cards or the office real estate market. We didn't expect a bank run [bank panic, Ed], a chain reaction that begins with massive customer withdrawals, he told AFP.

Not to mention that these difficulties coincided with the announcement, Wednesday evening, of the liquidation of Silvergate Bank, an establishment particularly present in cryptocurrencies.

Stephen Innes, analyst of SPI Asset Management, wants to be reassuring, estimating low, in a rating, the risk of a capital or liquidity incident among major banks.

Since the 2008-2009 financial crisis and bank failure American Lehman Brothers, the banks must give reinforced pledges of solidity to their national and European regulators.

They must, for example, justify a higher minimum level of capital intended to mop up any losses.

Morgan Stanley analysts say the funding pressures the SVB is facing faced are very specific and other banks do not face a shortage of liquidity.