EXPLAINER | Why Silicon Valley Bank failed and is a financial crisis next? | Business

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SBV is the biggest bank failure in the US since 2008. Why did it happen, and is it a signal of an impending financial crisis? | News24_Business

On Friday, United States regulators seized the assets of the Santa Clara, California-based bank after depositors began withdrawing funds en masse amid fears over the lender’s financial health.

As economic conditions for the tech sector became more straitened following the pandemic boom, many of SVB’s customers began to draw on their funds to stay afloat. Facing a cash shortage, SVB was forced to sell its bonds at big losses, prompting concerns about its financial health. Within 48 hours, spooked depositors had withdrawn enough funds to cause the bank’s collapse.

"It does seem that it catered to a particular clientele, and we all know that tech has taken a hit — and if you’re undiversified, you’ll take the hit also," Harvey told Al Jazeera. US President Joe Biden has sought to assure the public the situation is contained, saying,"Americans can have confidence that the banking system is safe."

As of December, the lender had $209.0bn in assets and $175.4 bn in total deposits, according to the Federal Deposit Insurance Corporation. Although SVB’s customers ultimately had their deposits guaranteed, the full effect of the lender’s implosion on the startup scene may not be apparent for some time.While the fallout of SVB’s collapse is still playing out, economists broadly agree that its failure is markedly different from the implosion of financial institutions, such as Bear Stearns and Lehman Brothers, that precipitated the 2007-08 global financial crisis.

 

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