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Silicon Valley Bank’s collapse sparks global bank crisis

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The collapse of Silicon Valley Bank (SVB), the second-largest bank failure in U.S. history, has triggered a global bank crisis as investors and regulators fear a domino effect of losses and defaults across the financial system.

SVB, which was known for serving startups, tech companies and venture capitalists, imploded on Friday after a massive run on deposits by its customers who panicked over its financial health. The bank had announced on Wednesday that it needed to raise $2.25 billion to shore up its balance sheet after losing $21 billion in assets due to higher interest rates and lower demand for tech stocks.

The bank’s downfall was swift and stunning: In just 48 hours, customers withdrew a staggering $42 billion of deposits, leaving the bank with insufficient liquidity to meet its obligations. The Federal Deposit Insurance Corporation (FDIC) seized the bank and sold its deposits and some assets to Wells Fargo for $1.5 billion.

The impact of SVB’s collapse was felt across the world as other banks scrambled to assess their exposure to SVB and its clients. Credit Suisse, one of SVB’s biggest lenders, said it would borrow £44.5 billion ($60 billion) from the Swiss central bank to cover potential losses from SVB-related loans. Other banks that had lent money or provided services to SVB or its customers also faced uncertainty and scrutiny from regulators and investors.

The global bank crisis also sparked fears of a broader economic slowdown as tech companies faced difficulties in raising funds, paying employees and suppliers, and maintaining operations amid the turmoil. The tech sector, which had been one of the main drivers of growth and innovation in recent years, was already under pressure from rising inflation, tighter regulation and increased competition.

Some analysts said that SVB’s collapse could be a wake-up call for the tech industry to diversify its banking relationships and improve its financial management. Others said that SVB’s collapse could be an opportunity for fintech firms to offer alternative solutions for tech companies’ banking needs.

However, many experts warned that the global bank crisis was not over yet and that more shocks could follow as the full extent of SVB’s collapse became clear.

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