The SVB Financial Group (NASDAQ: SIVB) went into receivership on Friday after its customers withdrew over $42 billion of deposits from its coffers, creating the much-dreaded bank run. In the past, no bank has survived a bank run, and Silicon Valley Bank was no different.
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Today, investors woke up to good news in the form of a joint statement from the Federal Reserve, the Treasury Department and the FDIC, which promised to backstop all depositors in Silicon Valley Bank. Dow futures shot 400 points higher on the news.
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On Friday, investors were worried that SVB customers whose deposits exceeded the FDIC’s maximum limit of $250,000 would suffer losses after the FDIC placed SVB into receivership and removed all of the bank’s senior management.
Many UK-listed companies issued statements today explaining their exposure to Silicon Valley Bank to pressure their investors that the bank’s collapse would not impact their operations. So far, most UK firms were not exposed to SVB, and some have had minimal exposure to the bank.
Furthermore, HSBC’s takeover of SVB UK is a welcome relief for depositors since the deal will protect the bank’s UK customers from losing any of their deposits. The Bank of England arranged the deal to protect UK businesses that bank with SVB.
Still, investors fear that more US banks may fail given the Fed’s hawkish monetary policy stance, which has significantly raised the cost of borrowing, making it difficult for businesses to access cheap funding and keeping away potential investors. This is what led to SVB’s demise.
Some analysts have warned that SVB’s collapse should serve as a warning to the Fed to reconsider its interest rate hikes and maybe even take a break from hiking rates for now. Goldman Sachs predicts that the Fed will not hike rates at its meeting on March 22, 2023.
Overall, the markets are pensive as investors reassess their portfolios, including their exposure to the financial sector and unprofitable startups, which might face challenges in raising much-needed funds.
The FDIC closed New York’s Signature Bank over the weekend following the SVB collapse.
*This is not investment advice.
The SVB share price.
The SVB share price was suspended from trading after the bank went into receivership on Friday.
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