There is a lot of concern in the US.
The American banking system has been shaken by an earthquake that no one could have anticipated. An earthquake that left three banks collapsed and forced the authorities to take radical measures to reassure customers.
Source: AFP
It all started on Wednesday night after the announcement of the liquidation of Silvergate Bank, a small regional bank that had become a favorite destination for the cryptocurrency community.
The La Jolla, California-based entity, which suffered a series of setbacks in the crypto universe, particularly with the FTX platform debacle, was faced with a wave of withdrawals that left it unable to meet its commitments.
That same night another much larger bank, the silicone Valley Bank (SVB), announced that it was also experiencing massive withdrawals.
A favorite of much of the emerging tech sector, the SVB suffered from the slowdown of the new economy.
Investment funds are increasingly turning to banks due to difficulties in raising funds, and when it comes to start-ups, they have a chronic need for cash flow to finance their growth.
The SVB is also under pressure, like the rest of the banks, due to the strong monetary tightening of the Federal Reserve (Fed, central bank).
Most of the money that banks ask for is short-term in order to lend long-term.
In general, they benefit from the fact that short-term rates are significantly lower than long-term rates. However, the Fed’s monetary tightening caused the opposite phenomenon and reduced banks’ spreads.
In a careful presentation, the SVB on Wednesday highlighted the strength of its accounts and the relatively low ratio of its loans to deposits.
However, in addition to the drop in its deposits, it announced that it launched a capital increase of 2,250 million dollars.
He also revealed that he urgently sold a portfolio of 21,000 million dollars in financial securities to secure his cash reserves, an operation in which he lost 1,800 million dollars.
– Race against time –
The announcement was enough to alert investors and clients, who rushed the next day to recover their assets. On Thursday alone, SVB received withdrawal orders for some $42 billion.
Even without being able to meet all the requests, as of Thursday night it was already running nearly $1 billion in negative cash flow, a sign it transferred more cash than was available.
SVB was also punished on the stock market, where its share fell 60% during the session.
On Friday the listing of its title was suspended, and immediately after the Federal Deposit Insurance Corporation (FDIC) announced that it was taking control of the entity, dying and unable to find a buyer.
The main local banks remained relatively unscathed, but several medium-sized or regional institutions began to feel the effects.
Signature Bank of New York, PacWest of California or Western Alliance, based in Phoenix (Arizona), they lost more than 20% on the day.
Many were concerned about the fate of the SVB’s deposits, of which only 4% of the total $170 billion are covered by the FDIC’s guarantee mechanism, which guarantees up to $250,000 per customer and per bank.
The technology sector fears a catastrophe for not being able to access the funds deposited in SVB, but beyond this case, the fear extends to individuals and companies in other sectors.
On Sunday, the Fed, the Treasury Department and the FDIC said they will act so that all customers can withdraw all their money from the SVB.
They also announced that SignatureBank, the 21st bank by business size in the country, was intervened and that its clients will benefit from the same system as those of the SVB.
The Fed has offered to lend to other institutions that may need it to meet the withdrawals.
After a race against time, the US authorities hoped to have restored confidence in their banking system before the markets reopened on Monday.
