Silicon Valley Bank (SVB) was shut down by US authorities on Friday as the biggest US bank failure since the 2008 financial crisis sent a wave of panic through the markets. The bank was no longer able to cope with the massive withdrawals of its customers, mainly tech players, and its last attempts to raise fresh money were unsuccessful. 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 financial sector regulators on Friday to discuss the situation, reminding them that she had “full confidence” in their ability to take appropriate action, and said the banking sector remains “resilient”.
Nervous customers
Little known to the general public, SVB had specialized in the financing of start-ups and had become the 16th American bank by the size of assets: at the end of 2022, it had 209 billion dollars in assets and around 175.4 billion in deposits. His disappearance not only represents the biggest bank failure since that of Washington Mutual in 2008, but also the second biggest 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 storefront, a paper from the FDIC indicated that they could, from Monday, withdraw up to 250,000 dollars. “It’s not good. A lot of the bigger (venture capital firms) have very high deposits here,” remarked one client who declined to be named. Boss of a start-up, he used the bank to pay his employees and worry about them.
In the markets, the panic movement began on Thursday, after SVB announced that it was seeking to quickly raise capital to cope with the massive withdrawals of its customers, without succeeding, and having sold 21 billion dollars worth of securities. financiers, losing $1.8 billion in the process.
The announcement surprised investors and revived fears about the soundness of the banking sector as a whole, particularly with the rapid rise in interest rates which is lowering the value of the bonds in their portfolios and raising 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 the day before: JPMorgan Chase gained 2.54% while Bank of America and Citigroup lost less than 1%.
Medium-sized banks or more concentrated on one type of customer were on the other hand more in turmoil, First Republic for example dropping nearly 15% and Signature Bank, close to the cryptocurrency community, 23%.
Guardrails
“As is often the case in finance, the problem did not come from where we expected it,” explains Alexander Yokum, of the CFRA firm. “A lot of observers were wondering about the debt piling up on credit cards or the office real estate market. We weren’t expecting a ‘bank run'”, a chain reaction which begins with massive customer withdrawals, he told AFP. Stephen Innes, an analyst at SPI Asset Management, wants to be reassuring, estimating “low”, in a note, the risk “of a capital or liquidity incident among the big banks”.
Since the financial crisis of 2008/2009 and the bankruptcy of the American bank Lehman Brothers, banks have had to give reinforced guarantees of solidity to their national and European regulators. For example, they must demonstrate a higher minimum level of capital intended to absorb any losses. For Morgan Stanley analysts, “the funding pressures facing the SVB are very particular” and the other banks are not facing a “cash shortage”.